Jim Rogers '64 predicts the next financial crisis will be worse than 2008
by Kim Iskyan
Published on The Street.com
May 3, 2016
Jim Rogers is a living legend in the world of investing. And when he speaks, it's worth listening.
Rogers co-founded with George Soros one of the most successful hedge funds of all time and quit while he was still in his 30s. He later wrote some of the most entertaining and educational books about investing that you'll ever read, based on boots-on-the-ground traveling to some of the most remote markets on Earth. His experience with markets is so broad and deep that he's probably forgotten more about investing than most people learn in a lifetime.
I recently sat down with Jim — he's a fellow resident of Singapore — to get his views on the big-picture trends that are shaping global markets. Here are some of the highlights from that conversation.
Current Market Conditions
Jim said the world is facing some serious problems because of the enormous amount of global debt. He added that we are headed for a financial crisis that will be even worse than the one in 2008-2009. Even Asian countries, which avoided the worst of what happened in the last crisis, won't be immune this time because they have taken on too much debt in recent years.
Jim said he has sold short U.S. stocks. He said there is obviously some underlying problems because even though they were near all-time highs in 2015, twice the number of stocks were down for the year as were up. This was because about 10 large stocks dominated what was happening on the New York Stock Exchange.
He is long the dollar, though. It's viewed as a safe haven in times of trouble, which is where the world may be headed. If the dollar becomes overvalued, or enters bubble territory, Rogers says he will sell it and look at buying the Chinese yuan or precious metals.
Rogers says he agrees with the direction the Chinese government is taking by letting its currency float. When the yuan becomes completely convertible — that is, when the government stops manipulating it — there will be a decline in its value.
He is also long China stocks. When I asked him what investments he would put in his two daughters' retirement accounts, he said Chinese stocks. He also made the interesting point that if you sold U.S. stocks in 1916 you would have looked smart for a couple of years. But the U.S. was the big story of the 20th century.
It's the same for China now, according to Rogers. It's going to be the big story in the coming decades despite any problems the country is currently facing. So, buying shares in Chinese companies and holding them for the long term is a good strategy. Plus, Chinese stocks have been struggling, so it may be a good time to buy.
Anyone who's heard Jim speak in recent years knows he's a big believer in owning agricultural land. When I spoke to him he said he would rather own land than silver or gold. With a debt crisis looming and concerns about currencies losing their value, owning real assets like land is a good way to protect yourself. He even said that if he could he would buy a farm in North Korea. North Korea has to join the rest of the world at some point, and when it does land prices there will head higher.
He also noted that real estate in many parts of Asia is overpriced, especially in Hong Kong, Singapore (where Jim lives), and parts of China. While he has no objection to people owning a home to live in, he would avoid real estate as an investment in much of Asia. Real-estate prices have been heading higher because interest rates are so low. Once interest rates start heading higher, real-estate prices will fall, according to Rogers.
Gold, Oil, and Bonds
Jim said he is not buying gold right now. He believes it's good for holding its value over the long term, but he's not buying into any current rallies. For hard assets, he would rather own land.
He expects oil prices to bottom this year then start heading higher. In response, he's looking at ways to invest in countries that are heavily dependent on oil, such as Russia, Iran, Nigeria, Kazakhstan, and Venezuela. He wants to add to what he already owns in Russia by buying ruble-denominated government bonds and shares in Russian companies.
And he expects disaster everywhere in bond markets by late 2017. Rates are too low for all bond classes because central banks cut interest rates to record lows. He said, "But in the end, the central bankers are going to fail. The market has more money than they do." In response, he has sold short junk bonds.
So, these are the latest insights from a legendary investor: Short the U.S. stock market and junk bonds. Buy the dollar, Chinese stocks, and land. Also, keep your eye on countries that will benefit most when oil prices start recovering. And avoid Asian real estate.
Kim Iskyan is the founder of Truewealth Publishing, an independent investment research company based in Singapore.