Global equity markets have been rattled by the comments of the US Federal Reserve that it might wind down the $85-billion-a-month bond-buying programme. On the other hand, investors in the commodity space, especially in gold and crude oil, have seen the value erode with the prices of these two commodities on a downward spiral. Jim Rogers, chairman of Rogers Holdings and author of Street Smarts: Adventures on the Road and in the Markets tells Puneet Wadhwa in an interview most central banks have injected too much liquidity, which is not sustainable. All this will end badly for investors, he says. Edited excerpts:
What is your interpretation of the key US economic data and the recent statements by the Federal Reserve and the Bank of Japan (BoJ)? How stable and dependable is the macroeconomic recovery?
The recovery, in my opinion, is fragile. Central banks in America and elsewhere have been printing and pumping in huge amount of money into the world, which is also flowing into other economies. This has never happened in the recorded history and unfortunately, I think all this will end very badly for investors.
Do you think central banks across the globe could wind down the quantitative easing/ stimulus programmes in 2014?
Most central banks have injected too much liquidity, which is not sustainable. (Fed chief Ben) Bernanke has said he is going to keep pumping in money and keep interest rates down until 2015. I don't know how it will last beyond this year.
But if Bernanke is determined to continue with it and other central banks in Japan and Europe will also follow suit, I feel it is the market that won't allow this to happen. I think the bubble will burst and will cause a lot of pain across the globe. It's not going to go on for a long time, and once it's over, it will be very painful for a lot of people. The bond prices will also go down despite the central banks' intervention.
What is the likely impact of this on global commodity markets?
I think the bull-run in commodities will continue and what we are seeing now is a long overdue correction. In all bull markets, there are corrections and it does not mean that it has come to an end. We have seen that in the equity bull markets. For example, between the years 1982 and 2000, a lot of people called a correction an end of the bull phase in equities. This is exactly what is happening to commodities right now. So, the long-term bull market in commodities is not over yet.
What is your assessment of the Chinese economy and the likely impact on global commodity prices over the next couple of years?
There is a slowdown in the Chinese economy and naturally this is impacting the commodity prices as well. China has also unsuccessfully tried to burst the bubble in the real estate sector since the past few years. Going ahead, I think this bubble will also burst though it is difficult to put a time frame to it right now.
Among commodities, gold and crude oil have seen a massive slide since the past few months. Have we hit bottom or is there more on offer over the next few months? What about base metals / industrial metals?
A correction in precious metals was long overdue. Gold has seen a steady rise for 12 years in a row, which is extremely unusual for any asset. Hopefully, now we are witnessing a long overdue and necessary correction in the yellow metal. I expect the gold prices to trend down further and then stage a recovery although there could be a good trading rally first.
I own both gold and silver and I am neither selling nor buying these two precious metals at current levels. Though I am not investing in yet, I may do so at lower levels. There are limited crude oil reserves and the demand, too, has been slowing down. I suggest buying into crude if prices fall sharply. As regards metals, I think one can start looking at those that have seen a massive drop from the top such as nickel and lead.
What about the agri-commodities?
I am very bullish on agricultural commodities, probably more bullish on agricultural commodities than other class of commodities. I hold a positive view about most agri-commodities given the low inventory levels.
How do you see the key currencies across the globe panning out?
Most investors prefer to invest in the US dollar in case of volatility and uncertainty. However, I prefer the Renmibi.