Interview with Jim Rogers ~ Dateline SBS

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When US financier and Wall St veteran Jim Rogers speaks, the investment community tends to listen.

And if they've been listening lately to the Singapore-based former business partner of George Soros, the news is not good.

He's no friend of Gordon Brown since declaring that Britain is "finished" and he says around the world "politicians are making it worse not better" by meddling with the bad banks.

"Let them go bankrupt and clean out the system," he says.



TRANSCRIPT


Given the severity of the financial crisis preoccupying the globe, Barack Obama's $800 billion stimulus package was meant to grab the world's attention. But did it? When Wall Street veteran Jim Rogers speaks the investment community actually tends to take notice. After all, he is a former business partner of billionaire philanthropist George Soros. Earlier this month, he raised the ire of Gordon Brown when he declared Britain 'finished' and urged investors to dump the sterling. So, what does this outspoken monetary maverick think of all those monster stimulus packages currently being doled out from Washington to Canberra? George Negus spoke with him earlier from his base in Singapore.





GEORGE NEGUS: Jim Rogers, thanks for your time. As I understand it, your views on the current world financial and economic crisis are pretty blunt. I mean, is it true that you believe, given that we've been hearing from Barack Obama all week about his stimulus plan, that it is actually going to make things worse, rather than better?

JIM ROGERS, CHAIRMAN, ROGERS HOLDINGS: For the people who get the money, George, it is going to make it better for them but for the rest of the country and the rest of the world, no, it's not going to make things better. It's going to make things worse. We are in perilous times and he doesn't seem to understand that he is making things much worse.

GEORGE NEGUS: I guess I have to ask you - and I know that you have had years of experience on the financial markets - does anybody really know - let alone the cause of this - what the solution is?

JIM ROGERS: Well, I will tell you what has worked in the past, George. What has worked in the past is you let people go bankrupt. When they fail, you clean out the system, you take a year or two or three of paying whatever it is, and then you start over. The competent people come in, take over the assets from the incompetent people and you start over.
This way of bailing out everybody in sight, it doesn't work. The Japanese tried it in the 1990s. They had zombie banks and zombie companies and they still talk about the 1990s as the lowest decade. It is 19 years later in Japan since they tried all of that. The stock market is down 80% - 8-0-% from where it was 19 years ago. This has never worked. It doesn't matter... I am not doing it ideologically here, I am saying this has never worked. The things that have worked are - take your pain and start over.

GEORGE NEGUS: So, you are saying all this bailing out that is going on - because bailing people out seems to - as you have suggested - be the way that everybody thinks we should go. That's what the stimulus packages are all about - to get people to spend more money. I mean, there's no way in the world that you or me or anybody else is going to stop the Obamas and the Browns and the Rudds of this world, in our case, from going ahead with the stimulus packages.

JIM ROGERS: I am afraid you are right. All of these politicians, they run around and think they've got to be doing something, and if they can pass out enough money they hope they will get through the next election and some day things will be OK. Unfortunately, they are not going to be OK. The only way that we are going to get rid of them, George, is that these programs are going to fail and then they'll be thrown out of office.

GEORGE NEGUS: What about our friend Mr Bernanke saying that it will be all over by the end of this year? He's a little more optimistic than yourself, to say the least.

JIM ROGERS: George, Mr Bernanke has never been right - he's been in the government for six or seven years, he has never been right. If I came on your TV show every week and was wrong eight or nine weeks in a row you would probably stop inviting me. Mr Bernanke has been wrong 300 weeks in a row and he has never been right. If you get your advice from Mr Bernanke, George, you are going to go broke very quickly.

GEORGE NEGUS: And you are apparently not a fan of the current Secretary of the Treasury either.

JIM ROGERS: Oh my God, you are bad for my nervous system, George, No, of course not. Mr Geithner was head of the New York Fed for several years. The New York Fed was the group that was in charge of Wall Street and the major commercial banks. He sat there and saw all this happening. He's part of the problem. It is astonishing to me that Mr Obama ran on a platform of change and he's brought in people who caused the problems and are there now supposed to solve the problems.

GEORGE NEGUS: What about the countries that are vital to the economic structure, the infrastructure of countries, like the US and the UK and even our own, that are too big for us to allow them to fail?

JIM ROGERS: What do you mean too big to fail? There's no such thing as too big to fail. Listen, there are plenty of banks in Australia, America and other places who have been doing what they were supposed to, minding their manners, not going doing crazy things, waiting for these moments to come so that they could come in and expand their market share and grow and prosper. Now, these people are being held back by all these "banks that are too big to fail" because the governments are giving them free money and saying, "OK, now you compete with the competent people." I mean, George, this is horrible economics and it is outrageous morality. Not that politicians care about morality.

GEORGE NEGUS: Jim, why shouldn't we see you as yet another doomsayer?

JIM ROGERS: I am not a doomsayer. I am very optimistic about a lot of things.

GEORGE NEGUS: Make me feel better then, Jim, because you are painting a pretty bleak picture.

JIM ROGERS: Listen, we have to face reality, George. I have. If you don't face reality and you sit there and twiddle along and believe Mr Bernanke that everything is OK, you are going to get hit by a two-by-four and it's going to hurt very, very, very badly, so I would urge you to be prepared. But some parts of the world's economy are going to boom. George, you should become a farmer. Agriculture is about to become one of the most exciting industries in the world for the next 20 or 30 years. There are plenty of people in the world who are going to do extremely well in the times that are coming up, but it's not Wall Street, it's not the City of London - the people who have been driving Lamborghinis for the past 10 years are suddenly going to have to drive taxis. Maybe they will learn to drive tractors so they can work for the farmers who will now have the Lamborghinis.

GEORGE NEGUS: Gordon Brown wasn't exactly impressed when you told him that Britain was finished, and that you will pulling out your sterling and told everybody else to do the same. It had a big impact in the UK. What are you doing with your American dollars?

JIM ROGERS: Well, I do own US dollars but I plan some time this year to get rid of the rest of my US dollars and my few remaining US shares.

GEORGE NEGUS: Seriously? And invest where, Jim? Where are you going to put your money?

JIM ROGERS: Ah, George, that is a brilliant question. I don't know right now but it looks as though I will probably wind up putting a lot of it into real assets such as cotton or zinc or gold or oil or whatever it happens to be.

GEORGE NEGUS: Into the real economy, Jim, I can say, into the real economy, not the unreal economy of the finance world.

JIM ROGERS:Absolutely, I'm talking about real products which people use every day. You and I know what cotton and silk and zinc are, most of us didn't have a clue what dotcom was or what a CDO was and yet there were billions of dollars put into them and that's all going to change now, George. Those days are over. The financial community is going to be a very, very bad place to be for another 10 or 20 or 30 years.

GEORGE NEGUS: Are we looking at not the Great Depression but the even Greater Depression?

JIM ROGERS: If you ask me, yes, we are going to have another depression in the United States because the politicians keep bungling. That's what caused the Great Depression in the 1930s - politicians around the world made mistake after mistake after mistake and I'm afraid it's happening again, including protectionism.

GEORGE NEGUS: You don't blame, like so many people are, the bankers and the hedge market players like yourself. They are not to blame, it's the politicians?

JIM ROGERS: It's mainly central banks, more than anybody else. If you have only have one single cause it's the central bank in the United States. We had a man named Alan Greenspan running the central bank. He refused to let anybody fail. Any time people got into trouble they would call up and say, "Save me, save me, save me." He would bail out everybody. Had he let the market work, had he let people fail over the past 15 years, Lehman Brothers would still be in business. Bear Sterns would still be in business.

GEORGE NEGUS: Jim, let us finish on this note. Here in Australia, we're on the stimulus bandwagon, for better or worse, rightly or wrongly, what's your feeling about this country at the moment? Because they seem to be going down the same - our mini-version of the Barack Obama trail?

JIM ROGERS: Australia should be one of the countries that's going to come out of this in good shape. Because you have lots of natural resources. I said before that people who are now going to inherit the earth are going to be people that produce real goods, such as Australia. Unfortunately, your politicians are a bad as American politicians - they keep spending money on projects that are just make-work projects rather than building for the future. Look at China and Singapore, for instance - they are mainly spending money trying to make the countries more competitive down the road.

GEORGE NEGUS: You seem to be saying that this country is kidding itself if we still regard ourselves as the lucky country.

JIM ROGERS: While Australia has been a lucky country at times I'm afraid Australia's not so lucky right now because your politicians keep making mistakes, just like mine do.

GEORGE NEGUS: Jim, it's good talking to you. I hope that next time we talk things are looking a little brighter. I hope that your optimism for the long-term future we see a little earlier maybe.

JIM ROGERS: George, go become a farmer.

GEORGE NEGUS: I will think long and hard about that, Jim. Sounds like good advice. Thanks for your time.

JIM ROGERS: Thank you.

Thanks for your Comments, Readers

I posted item to this blog since 2005 and didn't get any feedback for a year and a half at all. The insanity that 80% of the increases in the West's spending this century was driven by home equity withdrawl and the monitisation of what will prove to be have been largely illusionary appreciation of nominal asset values in everything from homes, commercial real estate and stocks escaped most people. It screamed bubble.
Anyway, its demise has made the blog more popular, but I not a complete gloom and doomer. I very much think that both hard and commodities, gold, silver, oil and alternate energy are very undervalued.
Commodity producers, energy and alternate energy services will the the cash rich core around which many economy's will rebuild and this will be reflected in the popular culture.

I agree with Jim Rogers.

Jim Rogers
"The commodities guru predicted two years ago that the credit bubble would devastate Wall Street.

We are in a period of forced liquidation, which has happened only eight or nine times in the past 150 years. The fact that it's historic doesn't make it any more fun, of course. But it is a pretty interesting time when there is forced selling of everything with no regard for facts or fundamentals at all. Historically, the way you make money in times like these is that you find things where the fundamentals are unimpaired. The fundamentals of GM are impaired. The fundamentals of Citigroup are impaired.

Virtually the only asset class I know where the fundamentals are not impaired - in fact, where they are actually improving - is commodities. Farmers cannot get a loan to buy fertilizer right now. Nobody's going to get a loan to open a zinc or a lead mine. Meanwhile, every day the supply of commodities shrinks more and more. Nobody can invest in productive capacity, even if he wants to. You're going to see gigantic shortages developing over the next few years. The inventories of food worldwide are already at the lowest levels they've been in 50 years. This may turn into the Great Depression II. But if and when we come out of this, commodities are going to lead the way, just as they did in the 1970s when everything was a disaster and commodities went through the roof.

What I've been buying recently is agricultural commodities. I've also been buying more Chinese stocks. And I'm buying stocks in Taiwan for the first time in my life. It looks as if there's finally going to be peace in Taiwan after 60 years, and Taiwanese companies are going to benefit from the long-term growth of China.

I have covered most of my short positions in U.S. stocks, and I'm now selling long-term U.S. government bonds short. That's the last bubble I can find in the U.S. I cannot imagine why anybody would give money to the U.S. government for 30 years for less than a 4% yield. I certainly wouldn't. There are going to be gigantic amounts of bonds coming to the market, and inflation will be coming back.

In my view, U.S. stocks are still not attractive. Historically, you buy stocks when they're yielding 6% and selling at eight times earnings. You sell them when they're at 22 times earnings and yielding 2%. Right now U.S. stocks are down a lot, but they're still very expensive by that historical valuation method. The U.S. market is yielding 3% today. For stocks to go to a 6% yield without big dividend increases, the Dow will need to go below 4000. I'm not saying it will fall that far, but it could very well happen. And if it gets that low and I'm still solvent, I hope I'm smart enough to buy a lot. The key in times like these is to stay solvent so you can load up when opportunity comes."

So please, feel free, ask and comment away and lets define together what we face and what individuals should do about it.

Jim Rogers Exclusive: Bigger Financial Shocks Loom

Keith Fitz-Gerald wrotes: VANCOUVER, B.C. – The U.S. financial crisis has cut so deep – and the government has taken on so much debt in misguided attempts to bail out such companies as Fannie Mae ( FNM ) and Freddie Mac ( FRE ) – that even larger financial shocks are still to come, global investing guru Jim Rogers said in an exclusive interview with Money Morning .

Indeed, the U.S. financial debacle is now so ingrained – and a so-called “Super Crash” so likely – that most Americans alive today won't be around by the time the last of this credit-market mess is finally cleared away – if it ever is, Rogers said.

The end of this crisis “is a long way away,” Rogers said. “In fact, it may not be in our lifetimes.”

During a 40-minute interview during a wealth-management conference in this West Coast Canadian city last month, Rogers also said that:

* U.S. Federal Reserve Chairman Ben S. Bernanke should “resign” for the bailout deals he's handed out as he's tried to battle this credit crisis.
* That the U.S. national debt – the roughly $5 trillion held by the public– essentially doubled in the course of a single weekend because of the Fed-led credit crisis bailout deals.
* That U.S. consumers and investors can expect much-higher interest rates – noting that if the Fed doesn't raise borrowing costs, market forces will make that happen.
* And that the average American has no idea just how bad this financial crisis is going to get.

“The next shock is going to be bigger and bigger, still,” Rogers said. “The shocks keep getting bigger because we keep propping things up … [and] bailing everyone out.”

Rogers first made a name for himself 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" in 1980 that the investing masses got to see him in action. Rogers traveled the world (several times), and penned such bestsellers as "Investment Biker" and the recently released " A Bull in China ." 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 prices that's fueled a year-long bull market in the agriculture, energy and mining sectors.

Rogers' candor has made him a popular figure with individual investors, meaning his pronouncements are always closely watched. Here are some of the highlights from the exclusive interview we had with the author and investor, who now makes his home in Singapore:

Keith Fitz-Gerald (Q): Looks like the financial train wreck we talked about earlier this year is happening.

Jim Rogers: There was a train wreck, yes. Two or three – more than one, as you know. [U.S. Federal Reserve Chairman Ben S.] Bernanke and his boys both came to the rescue. Which is going to cover things up for a while. And then I don't know how long the rally will last and then we'll be off to the races again. Whether the rally lasts six days or six weeks, I don't know. I wish I did know that sort of thing, but I never do.

(Q): What would Chairman Bernanke have to do to “get it right?”

Rogers : Resign.

(Q): Is there anything else that you think he could do that would be correct other than let these things fail?

Rogers: Well, at this stage, it doesn't seem like he can do it. He could raise interest rates – which he should do, anyway. Somebody should. The market's going to do it whether he does it or not, eventually.

The problem is that he's got all that garbage on his balance sheet now. He has $400 billion of questionable assets owing to the feds on his balance sheet. I mean, he could try to reverse that. He could raise interest rates. Yeah, that's what he could do. That would help. It would cause a shock to the system, but if we don't have the shock now, the shock's going to be much worse later on. Every shock, so far, has been worse than the last shock. Bear-Stearns [now part of JP Morgan Chase & Co. ( JPM )] was one thing and then it's Fannie Mae ( FNM ), you know, and now Freddie Mac ( FRE ).

The next shock's going to be even bigger still. So the shocks keep getting bigger because we kept propping things up and this has been going on at least since Long-Term Capital Management . They've been bailing everyone out and [former Fed Chairman Alan] Greenspan took interest rates down and then he took them down again after the “ dot-com bubble ” shock, so I guess Bernanke could try to start reversing some of this stuff.

But he has to not just reverse it – he'd have to increase interest rates a lot to make up for it and that's not going to solve the problem either, because the basic problems are that America's got a horrible tax system, it's got litigation right, left, and center, it's got horrible education system, you know, and it's got many, many, many [other] problems that are going to take a while to resolve. If he did at least turn things around – turn some of these policies around – we would have a sharp drop, but at least it would clean out some of the excesses and the system could turn around and start doing better.

But this is academic – he's not going to do it. But again the best thing for him would be to abolish the Federal Reserve and resign. That'll be the best solution. Is he going to do that? No, of course not. He still thinks he knows what he's doing.

(Q): Earlier this year, when we talked in Singapore, you made the observation that the average American still doesn't know anything's wrong – that anything's happening. Is that still the case?

Rogers: Yes.

(Q): What would you tell the “Average Joe” in no-nonsense terms?

Rogers: I would say that for the last 200 years, America's elected politicians and scoundrels have built up $5 trillion in debt. In the last few weekends, some un-elected officials added another $5 trillion to America's national debt.

Suddenly we're on the hook for another $5 trillion. There have been attempts to explain this to the public, about what's happening with the debt, and with the fact that America's situation is deteriorating in the world.

I don't know why it doesn't sink in. People have other things on their minds, or don't want to be bothered. Too complicated, or whatever.

I'm sure when the [ British Empire ] declined there were many people who rang the bell and said: “Guys, we're making too many mistakes here in the U.K.” And nobody listened until it was too late.

When Spain was in decline, when Rome was in decline, I'm sure there were people who noticed that things were going wrong.

(Q): Many experts don't agree with – at the very least don't understand – the Fed's current strategies. How can our leaders think they're making the right choices? What do you think?

Rogers: Bernanke is a very-narrow-gauged guy. He's spent his whole intellectual career studying the printing of money and we have now given him the keys to the printing presses. All he knows how to do is run them.

Bernanke was [on the record as saying] that there is no problem with housing in America. There's no problem in housing finance. I mean this was like in 2006 or 2005.

(Q): Right.

Rogers: He is the Federal Reserve and the Federal Reserve more than anybody is supposed to be regulating these [financial institutions], so they should have the inside scoop, if nothing else.

(Q): That's problematic.

Rogers : It's mind-boggling. Here's a man who doesn't understand the market, who doesn't understand economics – basic economics. His intellectual career's been spent on the narrow-gauge study of printing money. That's all he knows.

Yes, he's got a PhD, which says economics on it, but economics can be one of 200 different narrow fields. And his is printing money, which he's good at, we know. We've learned that he's ready, willing and able to step in and bail out everybody.

There's this worry [whenever you have a major financial institution that looks ready to fail] that, “Oh my God, we're going to go down, and if we go down, the whole system goes down.”

This is nothing new. Whole systems have been taken down before. We've had it happen plenty of times.

(Q): History is littered with failed financial institutions.

Rogers: I know. It's not as though this is the first time it's ever happened. But since [Chairman Bernanke's] whole career is about printing money and studying the Depression , he says: “Okay, got to print some more money. Got to save the day.” And, of course, that's when he gets himself in deeper, because the first time you print it, you prop up Institution X, [but] then you got to worry about institution Y and Z.

(Q): And now we've got a dangerous precedent.

Rogers: That's exactly right. And when the next guy calls him up, he's going to bail him out, too.

(Q): What do you think [former Fed Chairman] Paul Volcker thinks about all this?

Rogers: Well, Volcker has said it's certainly beyond the scope of central banking, as he understands central banking.

(Q): That's pretty darn clear.

Rogers: Volcker's been very clear – very clear to me, anyway – about what he thinks of it, and Volcker was the last decent American central banker. We've had couple in our history: Volcker and William McChesney Martin were two.

You know, McChesney Martin was the guy who said the job of a good central banker was to take away the punchbowl when the party starts getting good. Now [the Fed] – when the party starts getting out of control – pours more moonshine in. McChesney Martin would always pull the bowl away when people started getting a little giggly. Now the party's out of control.

(Q): This could be the end of the Federal Reserve, which we talked about in Singapore. This would be the third failure – correct?

Rogers: Yes. We had two central banks that disappeared for whatever reason. This one's going to disappear, too, I say.

(Q): Throughout your career you've had a much-fabled ability to spot unique points in history – inflection points, if you will. Points when, as you put it, somebody puts money in the corner at which you then simply pick up.

Rogers: That's the way to invest, as far as I'm concerned.

(Q): So conceivably, history would show that the highest returns go to those who invest when there's blood in the streets, even if it's their own.

Rogers: Right.

(Q): Is there a point in time or something you're looking for that will signal that the U.S. economy has reached the inflection point in this crisis?

Rogers: Well, yeah, but it's a long way away. In fact, it may not be in our lifetimes. Of course I covered my shorts – my financial shorts. Not all of them, but most of them last week.

So, if you're talking about a temporary inflection point, we may have hit it.

If you look back at previous countries that have declined, you almost always see exchange controls – all sorts of controls – before failure. America is already doing some of that. America, for example, wouldn't let the Chinese buy the oil company , wouldn't let the [Dubai firm] buy the ports , et cetera.

But I'm really talking about full-fledged, all-out exchange controls. That would certainly be a sign, but usually exchange controls are not the end of the story. Historically, they're somewhere during the decline. Then the politicians bring in exchange controls and then things get worse from there before they bottom.

Before World War II, Japan's yen was two to the dollar. After they lost the war, the yen was 500 to the dollar. That's a collapse. That was also a bottom.

These are not predictions for the U.S., but I'm just saying that things have to usually get pretty, pretty, pretty, pretty bad.

It was similar in the United Kingdom. In 1918, the U.K. was the richest, most powerful country in the world. It had just won the First World War, et cetera. By 1939, it had exchange controls and this is in just one generation. And strict exchange controls. They in fact made it an act of treason for people to use anything except the pound sterling in settling debts.

(Q): Treason? Wow, I didn't know that .

Rogers: Yes…an act of treason. It used to be that people could use anything they wanted as money. Gold or other metals. Banks would issue their own currencies. Anything. You could even use other people's currencies.

Things were so bad in the U.K. in the 1930s they made it an act of treason to use anything except sterling and then by '39 they had full-exchange controls. And then, of course, they had the war and that disaster. It was a disaster before the war. The war just exacerbated the problems. And by the mid-70s, the U.K. was bankrupt. They could not sell long-term government bonds. Remember, this is a country that two generations or three generations before had been the richest most powerful country in the world.

Now the only thing that saved the U.K. was the North Sea oil fields, even though Prime Minister Margaret Thatcher likes to take credit, but Margaret Thatcher has good PR. Margaret Thatcher came into office in 1979 and North Sea oil started flowing. And the U.K. suddenly had a huge balance-of-payment surplus.

You know, even if Mother Teresa had come in [as prime minister] in '79, or Joseph Stalin, or whomever had come in 1979 – you know, Jimmy Carter, George Bush, whomever – it still would've been great.

You give me the largest oil field in the world and I'll show you a good time, too. That's what happened.

(Q): What if Thatcher had never come to power?

Rogers: Who knows, because the U.K. was in such disastrous straits when she came in. And that's why she came to power…because it was such a disaster. I'm sure she would've made things better, but short of all that oil, the situation would've continued to decline.

So it may not be in our lifetimes that we'll see the bottom, just given the U.K.'s history, for instance.

(Q): That's going to be terrifying for individual investors to think about.

Rogers: Yeah. But remember that America had such a magnificent and gigantic position of dominance that deterioration will take time. You know, you don't just change that in a decade or two. It takes a lot of hard work by a lot of incompetent people to change the situation. The U.K. situation I just explained…that decline was over 40 or 50 years, but they had so much money they could have continued to spiral downward for a long time.

Even Zimbabwe, you know, took 10 or 15 years to really get going into it's collapse, but Robert Mugabe came into power in 1980 and, as recently as 1995, things still looked good for Zimbabwe. But now, of course, it's a major disaster.

That's one of the advantages of Singapore. The place has an astonishing amount of wealth and only 4 million people. So even if it started squandering it in 2008, which they may be, it's going to take them forever to do so.

(Q): Is there a specific signal that this is “over?”

Rogers: Sure…when our entire U.S. cabinet has Swiss bank accounts. Linked inside bank accounts. When that happens, we'll know we're getting close because they'll do it even after it's illegal – after America's put in the exchange controls.

(Q): They'll move their own money .

Rogers: Yeah, because you look at people like the Israelis and the Argentineans and people who have had exchange controls – the politicians usually figured it out and have taken care of themselves on the side.

(Q): We saw that in South Africa and other countries, for example, as people tried to get their money out.

Rogers: Everybody figures it out, eventually, including the politicians. They say: “You know, others can't do this, but it's alright for us.” Those days will come. I guess when all the congressmen have foreign bank accounts, we'll be at the bottom.

But we've got a long way to go, yet.