Jim Rogers has been a prominent investor since the time he and George Soros operated the Quantum Fund, one of the world’s first hedge funds.
He earned enough money to retire at the age of 37 and travel the world, ignoring the world’s markets for a few years.
However, he learned enough from his time as a hedge fund manager to realize that major strategic investing decisions didn’t require minute-by-minute analysis but rather a clear assessment of major trends that last for years. That led him in 1998 to put his money into commodity index funds and leave them on autopilot, at a time when most people were saying commodities were loser propositions and stocks would forever fly higher.
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Since the dotcom bubble burst and the stock market slump of 2000-03 and the massive rise of commodities for most of this decade, Rogers’ status has risen even higher.
However, the collapse of commodity prices since July has prompted some to question Rogers’ main thesis and wonder whether his prediction of a long-term bull market in commodities is still valid.
Jim Rogers is doing two things most investment gurus don’t have the guts to do in these troubled times.
He’s calling for governments to allow banks to go bankrupt, and he’s loading up on agricultural commodities.
While most investors have been fleeing the stock markets for a year and commodity markets since July, Rogers has recently been putting his money where his mouth has been for years – into commodity markets where he feels the big financial gains will be for the next 10 years.
And right now, his biggest bets are with agricultural commodities. He isn’t picking between various crops and he isn’t employing sophisticated trading strategies.
“RJA,” is his clipped response when asked where he’s putting his money during this market meltdown, referring to the Rogers International Commodity Index-Agriculture Total Return fund that he oversees.
That fund is a basket of 20 agricultural commodities representing the main crops traded around the world.
Rogers was perhaps the first and certainly the most famous proponent of the theory that the world has entered a long-term commodity bull market.
He surprised many investors in 1998 when he pulled his money out of stock markets and plunked it into commodities, but after the stock market slumped during the dotcom aftermath, and once commodities began soaring after 2000, his views became widely discussed.
As commodity after commodity surged, his views came to be echoed by many market observers. And after he published the book, Hot Commodities, in 2004, his views became the orthodoxy of a legion of investors.
But the commodity market meltdown since July 2008 has shaken commodity market speculators, and they have stampeded out of commodities in the same way average investors have fled stocks.
Not Rogers, who bristles at the argument of some market theorists that the commodity bull market is dead and that all asset classes are now all one market, heading downward for a long time.
He said the present situation is a short-term aberration to a general trend that hasn’t changed.
“Equity markets started collapsing well before commodities, but that is not the point,” he said.
“The studies are not over a month, a quarter or even a year. They are over the entire cycle. Of course things can move together in short periods, especially in times like this when there is massive forced liquidation of all positions.”
Rogers’ analysis of a century of stock and commodity markets still convinces him that the two markets tend to move in opposite directions over approximately 18 year periods. Whenever there is a bull market in stocks, as from 1982 to 2000, there tends to be a bear market in commodity prices.
Many farmers will remember the period from 1967 to 1982, in which most stock market investors made no money but commodity producers such as farmers had some of their best returns ever.
It’s not just a fluke correlation, Rogers believes. It’s clearly cause and effect.
When commodities become cheaper and easily available, the companies that make and sell stuff can earn good money without working too hard. However, when commodities start becoming more expensive and less readily available, it’s harder for those companies to pass on the cost increases.
Generally, booming commodity times are times of serious inflation in an economy. When commodity and other asset prices plunge, inflation can virtually disappear, as in the 1990s, or turn into deflation, as in the 1930s.
Many market watchers are saying world demand for commodities will slump in a likely worldwide recession. However, Rogers believes historical evidence does not support the conclusion that demand slumps enough to push commodities into a bear market.
After all, the 1970s and early 1980s were economically ghastly times for the industrialized world, and commodity prices stayed strong.
That’s why he’s still bullish on agricultural commodities. World stocks-to-use ratios are tight and people don’t stop eating because the economy has soured.
However, when will the present joint stock-commodity slump end and commodities regain their long-term strength? Rogers won’t attempt to guess an exact time or index number, but he said history shows that at a certain point in a plunge, commodities can break free before stocks hit their bottom.
What is this present period most analogous to?
“Maybe 1931 or perhaps 2001,” Rogers said.
“Note that in 2001 and now that stocks went down first and stayed down longer.”
In the spring of 2000 stocks began their big, three year slump. Commodities didn’t turn down until the beginning of 2001. Commodities roughly matched the stock market slump from early 2001 until late winter 2002, when they sharply diverged from stocks, beginning a stunning six-year advance.
Stocks continued to fall until early 2003, and their subsequent advance over the next few years fell far behind the commodity rally.
Will the commodity markets repeat their behaviour of 2000-03?
“We will see,” Rogers said.
