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Globally, bond market is biggest bubble right now: Jim Rogers

Interview with Chairman, Rogers Holdings

Puneet Wadhwa  |  New Delhi 

The first half of 2015 has been eventful for the global financial due to developments in Greece and China. The possibility of an increase in interest rates by the US Federal Reserve has also kept investors on the edge. Commodity prices, especially crude oil, base metals and gold, have also been hit by these developments. Jim Rogers, chairman of Rogers Holdings and author of Street Smarts: Adventures on the Road and in the Markets, tells Puneet Wadhwa he expects global financial to be affected by bankruptcies, fluctuations and declines in stock over the next couple of years. Edited excerpts: What is your interpretation of the developments in China and its implication for the global financial markets? Many stocks in China are closed, so one cannot trade in those. The people who had margin calls and who had borrowed money had to sell anything they could to raise money, as they could not sell stocks. That is why we saw a big drop in the commodity prices. It is artificial, forced liquidation from people who have to raise money. As far as stocks are concerned, they went up very quickly, got ahead of themselves and were bought on borrowed money. But when they started going down, fear and panic set in. Some investors were then forced to dump; others panicked and dumped as well. I have been buying shares and I had orders well below the market. I have been buying for the past couple of days. Some reports suggest the bull-run in MSCI China index might not be over. What are your thoughts? I don’t know much about this but I have been buying shares in China for the past few days. I have no idea when I will sell these, if ever. The developments have seen a slide in prices of commodities, especially base metals. What could be the road ahead? Once this artificial liquidation is over, I suspect base metals would be a good place to be in. The Chinese have borrowed against their copper and other base metals, so they were forced to sell when they got huge margin calls. I suspect we will see some kind of bottom going forward. By when do you see this bottom formation? I think that might be happening even now. Do you think these global developments could trigger risk aversion in equity as an asset class across global markets? Not across global markets, but certainly for many people. This risk aversion is good, because one needs corrections and consolidations. Bull markets climb a wall of worries; when nobody is worried and nobody is scared, it’s a problem. So, you want people to be scared and worried. This is not good for people losing money but it is good for the overall markets. Do you think the global markets could be in a turmoil over the next few months? I think we have seen bad times for a while. However, over the next couple of years, there will still be pain. I am not very good at short-term trading but I certainly know we will have plenty of problems in financial markets over the next couple of years. What problems do you see? We’ll have bankruptcies, huge fluctuations and declines in stock markets. We will have the bond market slowing a lot and a lot of turmoil in currencies as well. In the US, we haven’t had even a 10 per cent correction in stocks — it’s been five years. Now, we will have a lot of big declines starting in a year or two. Which geographies/ economies would you still consider safe from an investment perspective? I never use the word safe when talking about investment. At the moment some agricultural commodities are investment worthy. China, Russia, Japan North Korea and Ethiopia; I bought some shares in Zimbabwe recently. We have recently witnessed a sell-off in sovereign bonds. Could that happen again? Yes, we will see a lot of turmoil in financial markets, including the bond market. The bond market is perhaps the biggest bubble in the world right now.

And, when it finally starts going the other way, there will be huge losses in bonds. We might already have seen the top and the bond prices have been going down or moving sideways for two-three years now. What is your perception of India as an investment destination now? Do you buy into the ‘India reform’ story against the backdrop of what the government has done so far, and the road ahead? I bought some shares for the India reform story earlier, but sold those as there was no reform. Nothing has happened and so I sold my Indian shares. But most people are still hopeful reforms will happen and these still are early days for the government… That’s okay. Some people will make money in India. Narendra Modi has been in power for over a year, and virtually nothing has happened. He said he knew what he was doing while campaigning. He ran a state earlier, so what’s the problem now? Doesn’t he know what to do? Or can he not get it done? Anyway, I sold off my holding in India. What lies ahead for Greece? Do you think this could set a bad precedent for other indebted countries in the euro zone? Well, that’s one reason you have the euro zone/EU (European Union) refusing to give in. If they give in to Greece, they will have to give in to other people as well; they cannot afford that. That is why they are being so tough with Greece. They should be tough, otherwise the contagion will spread to the whole world. The world cannot afford this. So, continuing to be tough with Greece is a good thing. Problems with Greece have been going on for five years and it is perhaps higher now than it was before. They still spend huge amounts of money on pensions and government employees. So Greece hasn’t really had serious austerity yet. Can the euro zone disintegrate over the next five years? I think it will certainly change from what it is now. It could disintegrate, but I hope it doesn’t. The world needs something to compete with the US dollar. A sound euro will be a good thing, if they can make it a better currency.

There were some reports that the rupee could come under pressure in case the situation in Greece worsens. What are your thoughts?

I don't know much about the rupee at this moment, but India still has very high amount of debt compared to some other regions across the world. Many other currencies would be a better place to be than the rupee.

You had also said that the US dollar could cross the 100 mark against most global currencies. Do you still hold this view?

Well, it still can go past the 100 mark against most currencies but it may turn into a bubble. Once we have more currency turmoil, many people will flee to the US dollar and because they do not know what else to do. They think it is a safe haven. It is not a safe haven. It is not a prediction but this can happen.

Do you think the US dollar could probably lose its tag of a safe-haven currency over the next five years? Which currency, in your opinion, could replace it? That will happen, but it will take longer than five years. One reason why it will take longer than five years is that the only currency I see seriously coming close is the Renminbi, but the Chinese currency isn’t even convertible yet. So, it is impossible to see it replacing the US dollar at the moment. What is your outlook for gold and crude oil? I own gold and I am not buying gold right now. If it goes down, I will buy more. As for oil, the way most markets work, they have a big drop and collapse followed by a rebound. It is sometimes called a ‘dead-cat bounce’, and then it goes back to test the bottom again. I suspect crude oil will test the lows and pass this test, but in the meantime, I am not buying oil. I am waiting to see the oil test lows again.

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First Published: Mon, July 13 2015. 22:49 IST