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'Commodities are pricey at this point in time'

Q&A: Jim Rogers

Jitendra Kumar Gupta  |  Mumbai 

After last year’s sharp run up in commodity prices, Jim Rogers, the legendary commodities investor, is not bullish on most of the commodities at this point in time. However, he prefers to add some of them only if the prices correct. Jitendra Kumar Gupta spoke to him on the outlook for various commodities, his view on the global economic recovery and what are the lessons to learn from last year’s economic downturn. Excerpts

What is your sense of the global economic recovery?
Some parts of the world economy and countries have been better in 2009 and some will be better for a while in 2010. Government everywhere is spending and printing huge amounts of money. Sure, some of these countries will be better off. But, we are not solving the problem; we are just postponing the problems and making the problem worse down the line.

I suspect by the end of 2010, 2011 or 2012, the problems will be even worse because the governments have shot all their bullets. They do not have any reserves (not many governments) for the next time the problem occurs. I mean, what is that America is going to do. If it is going to print more money, we do not even have enough trees for America to print more money. It’s going to be worse the next time around.

Are you expecting the dollar to rally, and how will this influence the commodity space?
I expect the dollar to rally for while whether that will happen over a quarter, a year or two, I do not know. It could rally because there are so many pessimists on the dollar, including me. But, whether the dollar declines or rallies, it does not have that much to do with the commodities. Commodities are based on the supply and demand. Problems with the dollar are just the icing on the cake. I do not pay too much attention to the dollar when I am talking about investing in the commodities.

What is your view on gold?

I own gold but I am not buying gold at this point in time. It has run up a lot over a short period of time. It should consolidate and I am just watching. If it goes down I will probably buy more.

Between gold and silver, which one do you like the most at this point in time?
I own gold. But, if I have to buy one today, I would buy silver rather than gold. This is because silver is so much more depressed on historical basis than gold. Gold is 10 per cent lower compared to its all-time high, whereas silver is trading at 70 per cent below its all-time high. However, I am not buying either at this point in time.

What is your view on the outlook for non-ferrous (base) metals?
I would not buy base metal either because they have run up a lot. I mean, one can buy it if you think that the world economy is going to get better. Even if the world economy does not get better commodities will be still a good to be because they are printing so much money.

But, I think, Agriculture would be better than base metals.

Where do you see oil prices going ahead, any price range for the next year?
The situation is similar to that of gold. Oil has run up a lot in the last year. I am not buying oil right now. But, if it goes down a lot more, I will probably buy more oil. The world is running out of the known supplies of the oil. Unless somebody discovers a lot of oil very quickly and in very accessible areas, oil is going to be much higher over the next decade.

You were earlier of the view that China and Sri Lanka are better investment options than India. Do you still hold that view?
I am not buying shares anywhere right now. But, I suspect, it would depend on the price, if Indian stock collapses then I would think India would be better. At the moment I am not buying any of those countries.

What is your view on the global food scarcity and are there investment opportunities here?
Food inventories are the lowest not in years but in decades. Supply is going to remain down since we have serious production problems. At the same time, people are eating more and we are burning some of our foods as fuels. Things like sugar and maze are being burned in fuel tanks. We are going to see much higher prices of food. If we do not see much higher prices of food soon, we are going to have people starving. The prices of food have to go higher and much higher and I think they will. Most food prices are very depressed. Coco and sugar, both of which have been making in multi-year high, are still far below their all-time high. Though, I am not suggesting they are a buy or a sell.

Do you think that last year’s global crisis was the same as seen in 1930’s in terms of magnitude?
The crisis will be as bad as 1930’s before it’s over. Governments keep on making mistakes and the more mistakes you make, the worst it is going to be. In the end, I think many countries and industries have been hit as bad as in 1930’s. In industries like banking, insurance, automobiles and housing, it’s already been as bad as 1930’s in fact worse.

Any lesson to learn from last year’s global downturn?
Do not get yourself too leverage. And do not invest in things that you do not know anything about. But these are the lessons we have been learning from last ten thousand years and have learned. However, people forget or ignore them.

To be a successful investor in commodities what are the key things you need to know?
Firstly, you should be able to do a lot of homework and research to find out what is actually going on. And, if you have the ability to do the research and question the conventional wisdom, then you probably will do very well in investing in other asset classes. If you rely on your own judgement and research rather than on other people, that is when you are a fundamental investor.

When you invest in a particular commodity what are the key things you watch?
First of all, I look at the world reserves. Are they increasing or declining? I look at how many years of known reserves the world has? What the commodity is used for? How vital is this? If it is something like wheat or rice, which are very vital commodities, then you will have to figure out how much of it is going to be produced (more or less) and then you will have to see what factors will influence demand.

First Published: Mon, December 28 2009. 00:04 IST