Jim Rogers: 'Nobody gets out of this situation until there’s a crisis'

May 30, 2013·The GoldMoney News Desk

The following is GoldMoney contributing author Felix Moreno's interview with famed investor Jim Rogers. We hope you enjoy it.

Félix Moreno: Please tell us about your new book, Street Smarts. What was your motivation for writing it?

Jim Rogers: To my surprise people tell me it’s my best book. I never would have expected this reaction. I’ve written a few books about specific things, but my publisher said, “look, you’ve never sort of pulled it together: how did you get from the backwoods of Alabama to Singapore” – among a few things. I had a few setbacks along the way, and a couple of successes. So I sat down to put it all together in the book, how it all worked and everything seemed to be worth it. Some people seem to enjoy it, to my delight.

FM: I enjoyed it – I especially liked the story about your start at the Quantum Fund and your trading days, before retiring at 37. I also enjoyed your book Hot Commodities, in which you talk a lot about the current bull market in commodities. You set up your commodity index fund in 1999?

JR: It started on August 1 1998. The first bull year was 1999.

FM: You always say in your interviews that you are not a very good market timer, but I beg to differ. I’d like to turn to gold: you are one of the few gold bulls who had actually been calling for a correction in the past few months, or at least saying that we were in a correction and that, even though you were very optimistic in the long term, we should expect lower prices now. You must feel vindicated now.

JR: Every once in a while I get it right. Even I get it right sometimes. Vindicated? I don’t take any great pleasure in it. I just talk about the way the world works. It’s reality. Unfortunately some people don’t like to see how the world works, but yes, I did happen to get it right this time.

FM: So what is your opinion on the current state of the gold bull market. You’ve said repeatedly that you expect it to go much higher this decade. How do you see it right now?

JR: Unfortunately from my point of view, and I own gold and haven’t sold any, we are in a long overdue and much needed correction. The anomaly was that gold had been up 12 years in a row. That’s not normal, typical action. It’s abnormal, which worries me and should worry all the gold bulls. It has now corrected for some 18 to 20 months now. I find that encouraging. I mean, I don’t know, because I’m not a very good market timer, but I do know that most corrections go on long enough to scare a lot of people and scare them out of their positions, and that’s what I would expect to happen.

I’ve had people write to me and say: “gold cannot go down 30%”, and I say: “turn on your computer. It’s there.” There are a lot of mystics that are still true believers. Until it scares a lot of people the correction is not over. I would certainly like the correction to be over this afternoon and see gold go to $2,000 or to $3,000, but that’s not reality.

FM: You are one of the few well-known investors who actually says when he is buying or selling something. Most are scared of giving away their secret formula. What percentage of your portfolio is in precious metals?

JR: First of all I won’t say, but second of all I don’t know. I don’t have a committee that I have to answer to, so I don’t have a clue. I do know that I own a fair amount of precious metals, I’ve been buying them for years and I never sold them.

FM: Are you more invested in gold or in silver?

JR: Value wise more in gold, because gold sells for many multiples of the price of silver. But maybe I own more ounces of silver. But so what? Gold is so much more valuable.

FM: You write that you concentrate very much on fundamentals. However you lump gold in with other commodities in several of your books. Do you analyse gold as a commodity or do you look at it as money?

JR: Everybody has their own view. Mine is that gold is not money until you can go into a shop and get someone to accept it as money. Gold, certainly in recent decades, is nothing more than a commodity. Yes at times it has been money in the past, but so has silver, so have seashells, so have cattle. A lot of things have been used as money. Silver has been money more than gold historically, and throughout the world there is a lot more silver around.

FM: But you have to admit that gold isn’t easily valued as other commodities are. After all inventories of gold and the stock-flow ratio are very different from soybeans, rice or oil. The amount of gold that is mined or produced or recycled each year is very small compared to the stock of gold sitting in bank vaults and central bank vaults. So it’s hard to value gold using supply and demand, or at least annual supply and demand like with other commodities.

JR: If you mean annual supply and demand by the amount mined and the amount consumed, yes. The amount mined and consumed is very low compared to the overall inventory of gold. All the gold ever mined is still somewhere and that is going to continue for the foreseeable future. From that point of view I guess it is harder to value – to figure out the price of gold – rather than wheat for instance.

FM: I have to ask: have you heard of Bitcoin? Do you own any?

JR: I’ve heard of Bitcoin, I’ve never taken the time to figure out how it works and what it is. I know it’s there.

FM: You talk a lot about the future of China. You mention that China is the only one of the BRICs that you see having a very bright future. In fact you say that the acronym is off by only three letters. But why China? What makes it better than, say India?

JR: Have you ever been to India? If you can only visit one country you should go there. It is the most exceptional country in the world from a tourist point of view. But from the point of view of doing business, it’s the worst bureaucracy in the world, and the infrastructure’s a nightmare. It’s a very extraordinary place to visit – the languages; the man-made and natural marvels; the food; the religions; the languages. It’s extraordinary, but not as a place to do business unless you are in with the right people. If you are in with the government – the right part of the government – yeah, you’ll make a lot of money. But otherwise be very careful.

FM: Would you like to comment on property rights in Singapore? As you might know GoldMoney has recently opened a vault there, because it’s one of the countries that respects property rights and gold will be safer from confiscation and high taxes there.

JR: Well, I live in Singapore. Singapore does respect property rights and it’s an efficient and, from my point of view, terrific place to live. Who knows what’s going to happen over the next 50 years, but at the moment it is one of the sounder places to have assets. Whether the new gold vault here will work, I don’t know. But I do know that Singapore is a sound place to have assets.

FM: You don’t expect some populist politician suddenly sticking a huge tax on it?

JR: I would not expect that to happen on Singapore. I would expect it to happen in other places, maybe in the US.

FM: In your book you call the US “The largest debtor in the history of the world”.

JR: That’s not an indictment, that’s a fact. If you consider it a negative fact, it’s an indictment. It happens to be a fact that it is the largest debtor nation in the history of the world. The debt is going through the roof, you know with all the shady rates. I do criticise it. I don’t like it. I’m an American citizen. I’m an American taxpayer, so I hate what’s happening with the debt situation in America. No nation in history has gotten itself into this situation and got out without a crisis. So I guess it is an indictment.

FM: I Do you expect the US politicians to do something about the debt? To balance the budget any time soon?

JR: No, not at all. Not either the present politicians or future politicians. The situation is so dire that it would be almost impossible to balance the budget and pay down the debt without an enormous amount of pain. Now suppose that somebody could win an election on that platform – well within six months or a year or two, he would either be assassinated or give up because the people would say “wait a minute, we didn’t know it was this much pain. This is not what we had in mind” and he would be thrown out and his policies reversed. No it’s not going to happen until there’s a crisis or a semi crisis. That’s the lesson of history. Nobody gets out of this situation until there’s a crisis.

FM: What would you say to those that see the current situation as perfectly sustainable, especially in reference to the money printing, quantitative easing, etc.

JR: I would suggest that they get out a couple of simple history books and see if there has even been a way out. For what it’s worth, there has not been and there won’t be. I suggest that they look it up. They don’t have to listen to people like me, look it up.

FM: Do you think that Bernanke and the Fed have an exit plan from QE and zero-rates?

JR: Mr Bernanke’s exit plan apparently is that he is going to leave his job. He doesn’t want to stick around for the hangover. He doesn’t want to be around for the consequences of what he’s doing. I don’t know if there’s an exit plan. If and when they stop it’s going to cause lots of ramifications in the market and lots of, perhaps even chaos, but certainly turmoil and upset. The only exit plan that he’s talked about is to let it all mature. That sounds wonderful, but it’s not very practical.

FM: It seems that the whole “let’s get out before it crashes” worked well for Alan Greenspan.

JR: Well, Alan Greenspan did get out before it collapsed, more or less, but if nothing else, history has figured out that he is a charlatan who didn’t know what he was doing in the first place.

FM: So you don’t think that they have an exit plan. Does that mean that you are in the inflation camp? Do you think that the crisis is going to come from high inflation like in the ‘70s and ‘80s, or are you in the deflation camp? That it will come through bankruptcies, banking collapses and debt defaults?

JR: Throughout history when you print staggering amounts of money, it has always led to inflation. Now, you can have an inflationary boom, an inflationary feel-good period, but usually the politicians just keep printing. No politician is going to run on a platform, or could get elected on a platform of “we are going to have pain”, so they are going to continue to print money. You know as Mr Bernanke is doing, the BoJ, the Bank of England, the ECB. They all say the same thing. They are all doing the same thing. So they are going to continue to print money. Eventually of course what always happens is that inflation gets higher and higher and then the bubble pops and you have deflation and harder times. But between here and there is a long way, because they are not going to stop printing money. That’s all they know how to do. It’s the wrong thing, but it’s all they know to do.

FM: Capitalism without bankruptcy is like Christianity without hell and you give examples of banking crises where there were no bailouts. What is your opinion on the bailouts?

JR: It’s not supposed to work that way. You are not supposed to take money away from the competent people and give it to the incompetent so that the incompetent can compete with the competent people with their own money. That’s not the way capitalism is supposed to work. That’s not the way morality is supposed to work. I know politicians don’t care about morality. It’s not going to work. You see what happened in Japan. Japan has had two lost decades. Their stock market is down by 70-75% from where it was 23 years ago. This system has never worked.

In the 1920s America had this problem and America balanced the budget and raised interest rates. I repeat: balanced the budget and raised interest rates. They had a terrible 18 months, but then they had the most exciting economic decade in American history. Scandinavia did the same thing in the early ‘90s. When the Japanese were refusing to let people fail, the Scandinavians let people fail. They had a terrible two or three years, but since then Scandinavia has been an extremely strong and exciting part of the world.

This way (the bailout way) doesn’t work, and there are no examples of something like this having ever worked. It’s not going to work this time either.

FM: Some argue that a current example are the eastern European countries: Estonia, Lithuania, etc, who made big cuts within one year of the crisis and are now growing faster than the rest of Europe.

JR: There’s no question. You can look at other places: Iceland, Ireland – you know, the places that did take some pain have certainly done better than the places that denied reality.

FM: From the Spanish perspective, it’s certainly not better to have a lost decade or two by trying to postpone all the big budget-balancing hard work.

JR: You can postpone it all you want, but the problems just mount. There is no country in Europe that’s going to have lower debt this year than last year, or lower debt the next year than this year. Every one of them will run up the debt, instead of decreasing the debt.

FM: Do you expect the Euro to lose the currency wars? Which will fall down the cliff first? The yen, the euro or the dollar?

JR: It depends on what standard of measure you are talking about. The Japanese claim that they are going to print “unlimited” amounts of money. That’s their word, not mine. Unlimited amounts of money. I would expect the yen to go the furthest the fastest. But America has also said “wait guys, we’ll print a lot of money too” – though they didn’t say “unlimited”. And the British said “we should do it”.

So I don’t really know. It’s a very good question, which one to own. I don’t own the yen, because “unlimited” is a pretty hefty amount of money. I grapple with this every day, which currencies to own. Believe it or not I was even contemplating putting money into the ruble – only because it seemed less flawed at the moment than these others.

FM: You seem to have had a change of heart recently regarding Russia.

JR: In recent months I have seen that Mr Putin and people in the Kremlin have changed their attitude. It will take a while for all this to sink in. They said for many years that they welcomed foreigners and capital, but they were lying. They shot you, they put you in jail, and they confiscated your wealth. But now Mr Putin seems to understand that he has to play by international rules, he cannot go on putting people in jail and taking their money. If he wants to play on the world stage he has to treat international capital, and domestic capital, in a proper way. You can ask me in 10 years if I got it right or not.

FM: The Russians are more friendly to depositors than the Cypriots – and perhaps many other jurisdictions as well.

JR: Well, what happened in Cyprus as you know is that most of the big depositors were foreigners. It’s always easy to take advantage of the foreigners. 125 years ago America threw the foreigners right, left and centre. Nearly all developing countries find a way to take advantage of foreigners. It’s not a particularly good comment on world society. Cyprus voters did lose money, but nothing like to the extent of the foreign folk.

FM: On the other hand there are a few countries that do welcome foreign money like Singapore or Hong Kong.

JR: It might just be an anomaly of history. We can look back in eight years and see if Singapore and Hong Kong are still welcoming. I suspect they might do, but unfortunately throughout history there have been countries that welcome money, but then they get fat and lazy and they become anti-foreigner and confiscate their money. I don’t think you can find any country in history that has consistently welcomed foreigner’s money for centuries. Yes, for a century or two or even three maybe. But nobody has a history of always welcoming foreign money.

FM: But it gives hope to see that Hong Kong and Singapore changed China. Perhaps another “lighthouse city”, another good example could change Europe, Latin America…

JR: As long as my lifetime and my kid’s lifetime – I guess that would be more than most people can expect.

FM: You have become very favourable towards competing currencies as a solution to the crisis of fiat money.

JR: That’s the only solution that has ever worked long term. Nothing has worked a long time – including gold, silver, seashells, cattle. Nothing has worked long term except that you choose your money.

FM: You write about how you opened a Swiss bank account in the ‘70s. Could you do so today?

JR: It’s getting more and more difficult for foreigners – for Americans I should say – to open bank accounts anywhere in the world, because of the problems with the US government. I’ve had places where I’ve had accounts for years who have called me to say “look we love you, but we have to get rid of all American accounts”. It probably is possible to open a Swiss bank account, but I don’t know, I haven’t had to do it in a long time. I still have my Swiss bank accounts, which are all reported by the way, but it is becoming a problem for Americans.

FM: FATCA and the growing amount of regulation is one reason why so many are looking to Bitcoin and cryptocurrencies in general.

JR: Yes, it’s becoming a huge problem for Americans, honest Americans at least.

FM: What would you tell American leaders and politicians?

JR: Resign.

FM: The same thing to Ben Bernanke?

JR: No, Bernanke I would tell him to close the Federal Reserve and then resign.

FM: So you wouldn’t want, for example, Jim Grant as Fed chairman?

JR: I know Jim and I like him, but he has some ideas I don’t think would work. He’s a wonderful goldbug and has been for many years and is convinced that the gold standard would solve America’s problems. You know, the gold standard didn’t work either in the long term. They found ways to get around it. Or they just abolished it. The gold standard has its own problems too. The only way to survive is to let people decide for themselves what they want to use as money. Someone can use gold, or we find enough people who want to use seashells, or whatever.

FM: So competing currencies and may the best money win?

JR: It’s the only solution that has worked throughout history. Every government imposed, every dictated from of money has always failed. Including the gold standard.

FM: Yes, although the gold standard does have a record of lasting hundreds of years on several occasions. But I agree, nothing lasts forever and it’s better to have something that can evolve, not imposed from the top down.

JR: I’m not sure I know a case where the gold standard has lasted hundreds of years, but if you say so, yes. Gold has certainly had recurring uses. Not necessarily the gold standard, but gold itself has had recurring uses many times in history. But as I said before, silver has been used more historically than gold around the world, and so have other things.

FM: In fact China has used silver for a very long time. A lot of Spanish silver dollars ended up in China when they were kicked out of the US.

JR: Yes the Chinese have a longer history of silver than they do of gold, but again, many places do. Jesus was sold for 30 pieces of silver, not 30 pieces of gold. Silver was the predominant currency back in those days, in that part of the world.

FM: China has also had a long history with paper money. If there’s one constant in the history of money it’s that paper money never seems to last more than 40 or 50 years before blowing up.

JR: Paper money doesn’t have a very glorious history, but again, nothing imposed by the government has a very long and glorious history.

FM: On that positive note, and hoping for many good things to come in this new century, I’d like to thank you for talking to GoldMoney, and hope that you will be back soon.

JR: I’m delighted. Thank you very much. Let’s do it again.

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