Jim Rogers On When To Buy Gold, Chinese Bubbles And Fake Good News

Legendary commodity investor offers a wide-ranging view of investment topics, in his own irascible manner.

When Jim Rogers talks, investors listen, although they might be surprised to hear what the contrarian has to say. Rogers, who may be the world’s best-known commodity investor with his Rogers International Commodity Index and best-selling books, including “Hot Commodities,” is also known for swimming against investment currents and traditional thinking. HAI Managing Editor Drew Voros spoke with Rogers from his home in Singapore about gold and how he ignores the metal’s traditional fundamentals; his concerns about “fracking”; the myth of the Chinese real estate bubble; as well as what he calls “fake” good news emanating from dozens of countries facing major elections that he says are masking economic realities.

HardAssetsInvestor: As a resident of Singapore, I wanted to know if you had any insight into the country scrapping its 7 percent goods and service tax on gold. What are some of the intentions behind that?

Jim Rogers: Well, they would like to become a bullion trading center as the other places are becoming: London, Hong Kong, etc. It’s impossible to do that with a 7 percent goods and service tax on precious metals. It doesn’t expire until October, but they’re now in the process of figuring out what to do next. The country is already a trading center in a variety of things.

HAI: Do you think that will motivate some physically backed ETFs to start storing their metals there? Is that something that could happen?

Rogers: Could happen. Of course anything could happen; I don’t know what will happen. They’re still in the process of drawing up the laws. But Singapore is an obvious place for ETFs, especially for Asia because it’s completely liquid, completely trustworthy and completely neutral. Singapore has many advantages that other markets do not have in Asia.

HAI: Have your feelings about gold changed much in the last week since we’ve had the U.S. jobs report, as well as some of the euro debt problems re-emerging? We’re seeing a little bump in gold.

Rogers: I barely pay attention to the stuff you’re talking about. It really doesn’t change my view … as if you think some government statistics — which are wrong at late — would affect anything in my investment world. No, I don’t even know or pay attention to such things.

HAI: You had said a couple of months ago you’d buy gold at $1,250. Do you still think that’s a good price to jump back in?

Rogers: What I said was, if gold gets to $1100 or $1200 or $1300, I would hope I’m smart enough to buy more. I don’t know if it’s going to go there or not. I may buy it at $1850 if war breaks out with Iran. It depends on what happens in the world. What I said was that it won’t surprise me if gold goes down much lower; that’s normal for the way markets work. And if it goes there, I hope I’m smart enough to buy more. But if it goes to $1,550, I would probably buy more. Just depends on what happened.

HAI: Do you follow China’s gold production much in terms of what they actually do with their gold?

Rogers: No, that’s hard to do since China doesn’t publish too much about it. But I know that China has got a campaign encouraging the Chinese citizens to own gold. I know shops have sprung up everywhere. And the good banks are now offering gold everywhere. So there’s been a huge change in China in the past five years. And whatever they’re producing, I presume most of it they’re selling to themselves. They know that gold consumption has gone up a lot in China. They claim that they’re the largest producer of gold in the world now. I have no reason to doubt that claim. Lots of dramatic changes have taken place in China versus gold in the last few years.

HAI: But they also import a lot of gold too, don’t they?

Rogers: Well, I guess, I don’t know. If you have the numbers, you’re ahead of most of us, because China doesn’t report its imported numbers and export numbers for gold. But if you have them, then you have a scoop.

HAI: Sticking with China, I was talking to somebody who’s a big believer that platinum and palladium are really going to be supported by the Chinese auto production industry. Do you see China’s auto production growing that much over the next five years, say, to 100 million units?

Rogers: China will certainly be the largest producer and consumer of automobiles in the next several years. I don’t know how much they will produce or consume. You have 1.3 billion Chinese, I would remind you. So let’s see, a 100 million would be 8 percent of the population. That would be pretty high compared to the U.S., for instance. I think in the U.S. we produce 13 million or 14 million in a good year. And we have 300 million people. So with that kind of ratio, yours is pretty high. On the other hand, China has virtually no cars and only started producing and buying cars 15 years or so ago. So yes, it could happen; I have no idea. It’s not going to collapse, that’s for sure.

HAI: In the same vein, many believe there is a real estate bubble in China, but you don’t believe that, do you?

Rogers: It was a bubble in urban coastal real estate. But China, for the past three years, has been trying to pop that bubble. And the bubble has popped. You could certainly go down further, but I wouldn’t say there’s a bubble there now. Prices are coming down, transactions are coming down and people are losing money. I don’t know how long China will stay tough. I would hope they’d stay tough much longer, because they’ve got to kill inflation too.

But if anybody thinks there’s a bubble in China, they haven’t been doing their homework. The bubble popped. Prices have come down and are continuing to come down.

HAI: Let’s shift over to America in terms of where you think the economy is headed. I did read something where you said that this year’s probably fine. You’re more concerned about 2013 and 2014, because of the debt. Is that accurate?

Rogers: More or less, yes. What I said was there’s going to be a lot of good news in 2012. There’s an election in the U.S. But there are 40 elections around the world this year. Something like 40 to 50 percent of the world economy is having elections this year and early next. So you’re going to hear a lot of good news. However, it’s good news; it’s not reality.

The reality is that things are getting worse because this good news has come at the expense of taxpayers all over the world with debt going through the roof, and the situation is getting worse. People will notice by 2013 or 2014, maybe sooner, maybe even the fall of 2012, because the market looks ahead,

I’m not the only person who knows this is all a scam built on sand; we have problems and they’re going to be worse. In 2002, America had a slowdown. In 2008, the slowdown was worse, because the debt was so much higher. Well, the next slowdown is going to be even worse because the debt is going to be that much higher.

We’ve had economic slowdowns every four to six years in America, since the beginning of the Republic. So certainly by 2013 we’re due, if not before or later, but it is coming. And when it does, it’s going to be worse than the past. Because all of this good news — and I emphasize the word “news” — is artificial news, while the underlying reality continues to corrode and get worse.

HAI: Treasury bonds are giving investors a lot of mixed signals. How do you read that market?

Rogers: I shorted Treasury bonds again a little while ago, and my timing has never been very good in that market. I’m down a little bit, not much. It’s going to be a bubble. But like all bubbles, they go much higher than anybody expects; certainly higher than anybody rationally expects. You shouldn’t ask me for the timing; I can’t tell you it’s a bubble. That doesn’t mean it can’t go higher. Between the fall of ’98 and the spring of 2000, in 18 months, Nasdaq tripled, even though it was clear to anybody around that it was mania and a bubble. But that’s what happens in bubbles. They become absurd. And this one, it looks like it’s going to continue to become absurd, too.

HAI: If you could buy one commodity right now, what would it be?

Rogers: I guess it would probably be something in agriculture, because agriculture, on a historic basis, is very, very depressed. Over the past 38 years sugar — and I’m not suggesting you buy sugar, I’m using this as an indication — is down 70 percent, I believe, from its all-time high. Well, there’s not much that’s down 70 percent in price since 1974, 37-38 years ago. But sugar is one of those things.

So agriculture is where the opportunities are. And let’s see what’s down the most, rather than what’s up the most, as a place to start.

HAI: I want to ask you a couple of questions about oil. Do they do much fracking in Asia?

Rogers: No, fracking is mainly a U.S. thing. It’s beginning to catch on in other parts of the world as the technology develops. But I’m sure that soon the Chinese will probably pass us all just because once they see things, they catch up very quickly. And they don’t have to deal with a lot of the situations we do in the U.S. with environmentalists, politicians, etc. If they think it’s a good thing, they will jump in with both feet and do it. While there’s not much in Asia yet, I suspect — unless it is just an environmental catastrophe, which some people claim — you’ll probably see Asia catch up and pass the U.S. in the next few years.

HAI: There’s talk here about trying to export a lot of the natural gas we’ve built up here. Do you see that as a practical solution to the buildup here — to export LNG, or is that even plausible?

Rogers: It’s the economics. It doesn’t matter what I think; the economics either say yes it works or no it doesn’t. You have Qatar and Omar that can export gas. I’m sure that the U.S. can, if it’s economical. The problem with the U.S. is that to build the ports and things you have a lot more cost than you do in Qatar, because, again, they don’t have to deal with politicians and environmentalists that we have to deal with in the U.S. If it’s economical, I assure you it’s going to happen. I don’t know the economics so I cannot answer beyond that.

HAI: Regarding the Brent and WTI price spread, it seems to be growing again. Is this something that will continue until the Midwest inventory can actually be moved efficiently? Or is it that WTI is just not an efficient benchmark?

Rogers: Well, the first part of your question is certainly part of it. But you know in Europe, oil production is in decline, whereas in North America anyway, it’s rising, which suggests it’s not just Oklahoma that’s causing the problem at the storage centers. There are fundamental reasons that the prices should widen.

Now, the main reason of course is in fact Oklahoma. We presume if something will happen, eventually they’ll sort that out. But even then, we do have the fundamental situation that oil production is going up in the U.S., at least temporarily, and going down in Europe. That’s going to continue to have an influence on the markets. But if and when they ever build more facilities, either pipeline or storage, or the WTI figures out another way to price itself, it will continue to have this spread.

And even after WTI has changed or the storage facilities or the transport facilities are solved, you still have the basic underlying problem that oil production in Europe is declining, and it’s rising in North America.

HAI: Do you think the United States could become the No. 1 oil producer in the world?

Rogers: It’s highly unlikely. I see the same numbers that North America combined might be, but even that’s unlikely. In regard to those same numbers, I have questions I have not found the answers for. One is, how long-lived are these new fields? I have read they’re not long-lived. The other fields in the U.S. are also in serious decline. So you may have this initial jump from the new oil stands or shale oil or whatever you want to call it, but even if that goes up and stays up, the other fields are in serious decline in the U.S. And again, I don’t know about the lives of these fields, these new fields.

I hope somebody knows. But most of them are such new fields that it’s hard to have a real answer.

HAI: It’s interesting, I hadn’t heard that. That’s an interesting take.

Rogers: You may not have heard it, but I don’t listen to other people. I do my own thinking.