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Jim Rogers’ Crystal Ball on Latin America and China

The legendary investment guru and long-time commodities booster shares his views on the global economy, the commodity bull market and how Mexico, Brazil, Colombia and other Latin American economies will hold up in 2010 and beyond.

Ian McCluskey, Miami, Kroll – Tendencias January 2010

Alabama-raised Jim Rogers is perhaps best known as co-founder, with George Soros, of the Quantum Fund, which made him a wealthy man by his mid-30’s. But that was 30 years ago. Since then, he has circumnavigated the globe on a motorcycle and in a souped-up yellow Mercedes, written several best-selling books, and made countless millions more investing and dishing out advice in his customary blunt, yet southern gentlemanly manner.

A regular face on financial news networks and at investment summits the world over, Rogers – his timing impeccable — pulled up stakes in Manhattan in late 2007, selling his Riverside Drive mansion for a record $15 million just as the real estate market began to sour. He now makes his home in Singapore, while running his business out of a law office in downtown Miami. Rogers spoke with Kroll Tendencias in late December during a brief stopover.

Like other soothsayers, Rogers is bullish on much of South America. He foresees a great future for Colombia, but is not smitten by Brazil’s long-term prospects. Rogers, whose Rogers’ International Commodities Index (RICI) provides a compass for investment funds worldwide, predicts that the commodity bull market has another 10 years or so to run its course. He expects gold to hit $2,000 an ounce and oil to reach $200 a barrel sometime this decade.

Here are some excerpts from our conversation.

The Global Economy At least in the first half of 2010, he global economy will be better than in 2008 or 2009, but I would worry about 2011 and 2012, because governments are printing and spending so much money. We’re still in an ongoing economic problem that started in 2000 or 2001. We’ll see it get better for a little while, but over the next couple of years, things will not be better than they were in 2007, and perhaps never will be, in some countries.

Commodity Prices If the world economy gets better, commodity prices will go up because of shortages and, if the economy does not get better, commodities will still go up because governments are printing so much money. Will commodities go up in 2010?  I have no idea. If there is some big surprise – if the U.K. goes bankrupt, if America invades Iran — everything will go down for a while. But whatever happens, I expect commodities to be among the best places to be in 2010.

Crises on the Horizon I don’t foresee any critical events that will impact commodities in 2010. I would expect there to be a currency crisis or semi-crisis in the next year or two. I don’t think many people expect it, except me.

Bubbles in the Making Some emerging markets may be over-priced, but that does not mean a bubble. That’s just being expensive. Every market gets over-priced one time or another in any given year. The only bubble I see developing anywhere in the world is in the U.S. bond market, the long-term government bond market. I cannot conceive of lending to the U.S. government for 30 years in U.S. dollars at 3, 4, 5 or even 6% interest. It’s just mind-boggling to me.

Outlook for Latin America I am much more optimistic about most of Latin America, especially South America, than I am about North America, with the exception of Canada. I am more optimistic about parts of Latin America than I am about much of Europe. And that’s partly because of all the natural resources. South America is a commodity story.

Gushing over Colombia It looks like there will be real peace in Colombia and, if so, that would be one of the phenomenal opportunities of our time, because they have it all. Colombia’s been at war for, what, 30 years, 40 years? Any time you can get to a country shortly after a war ends, there are usually enormous opportunities because everything is so cheap. There’s not much energy, not much capital, not much optimism, still a lot of malaise. I’ve seen it happen over and over again. And Colombia has natural resources – coal, oil, agriculture – and, of course, it could become a tourist destination again. Terrific country. (Note: Last summer, after Sri Lanka declared an end to its long-running civil war, Rogers paid a visit to look around. “I didn’t buy anything yet,” he says.)

Not Sold on Brazil Whenever commodities have done well, Brazil has done extremely well. People get excited about Brazil, they start talking about the new Brazil, but then the bear market comes back to commodities, and the same old thing happens – [Brazil] prints money, inflation, military problems, military coups – and I suspect that will happen again, perhaps in 20 years or so. Right now, of course, things are great. Brazil’s economy is commodity-based and commodities are going through the roof. Do not get me wrong; I’m just suggesting that I have heard this story before about the great new Brazil.

Brazil’s President Lula The country is run by a socialist, but nobody really wants to be a socialist any more, and the ones that do want to be rich socialists. [Lula] came in in 2002 just as the bull market was gathering steam, so he looks like a genius.

More Attractive South America
Chile is doing well, even Uruguay. I’m still optimistic about Peru, too. It’s got a lot of natural resources and a reasonably good government. It, too, had a long war. Look around South America and, other than Venezuela and perhaps Ecuador, there are better things happening than before. But, again, whenever there’s a boom in commodities, if you’re a commodity country, you look better, you feel better. There’s nothing like having lots of money in the bank, lots of income, to make countries feel better and more attractive.

Waiting for the Other Shoe to Drop in Argentina (Note: In a November 2000 article in AmericaEconomia magazine, Rogers famously announced that, after driving around Argentina for several weeks, he was liquidating his remaining investments in the country and encouraged everyone else to do the same.)  The good on the horizon in Argentina is that things have gotten so much worse over the last seven years or so, that we are getting closer to a bottom. I’m not putting a single peso back into Argentina and have not done so since the [the 2001 debt default] because their governments – I don’t know how they do it – it’s astonishing how bad they can be. I’m still waiting for the other shoe to drop — another default, another debt crisis or whatever it might be. Argentina is a great agricultural nation, but they tell their farmers “You can’t export your stuff.” What they desperately need is foreign exchange and yet they say “We’re not going to earn any foreign exchange.” It’s stupefying how hopeless they can be at times.

Wary about Mexico Mexico has some huge problems. Forty percent of its income comes from oil but the oil is depleting at a very rapid rate. And of the country’s 100 million people, they are mainly young people.  I suspect you’ll see serious problems in Mexico over the next decade because young people get agitated pretty easily. If the government faces serious economic problems because they don’t have any money any more, Mexico could boil over.

China’s LatAm Connection China sees huge shortages of raw materials developing. The Chinese are not just going to Latin America. They are all over Central Asia, Africa. They are buying up everything in sight, because they know what’s coming. They are going where the commodities are and are willing to pay proper prices. And, in most countries the Chinese don’t tell the locals what to do. They say “Here’s your money, now let’s develop those mines, or grow those cops.” Most countries seem to be welcoming the Chinese with open arms.

Commodities Trading in China (Note: China’s Dalian Commodities Exchange recently invited Rogers to become its first foreign advisor.)  The main problem with doing anything with the Chinese as far as exchanges are concerned, is that their currency is blocked. You cannot trade the currency. It’s illegal for me to buy and sell commodities in China because I am not Chinese. Even if a foreigner could invest on the commodities exchange in China, the currency is still blocked. Not many people are going to take their money to China if they can’t get it out. Some companies, like Cargill, have licenses to trade but there aren’t many. If and when China does open up to foreign investors, I suspect China would become the largest commodities trading exchange in Asia, perhaps even in the world.

Hugo Chavez’ Perennial Threat to Stop Selling Oil to the U.S. and Sell Instead to China Chavez could conceivably do it, but oil is oil. It’s not like we’re talking about Picassos. Even if Chavez told the U.S. “We’re not going to sell you oil any more,” who cares? We’ll buy it somewhere else. There would be a temporary dislocation in the market. Some refineries would suffer, some ships would suffer, but it would all be re-jiggered. Chavez has to sell his oil somewhere; he can’t simply stop selling. So that oil is still in the market. If he sells it to China instead of America, those who were selling to China would now sell to the America. Oil’s a fungible product.

The author: Ian McCluskey ( imccluskey@kroll.com ) is Editor of Kroll Tendencias, a monthly online thought leadership platform that focuses on business trends and business challenges in Latin America and the Caribbean. Articles are produced by Kroll consultants and other thought leaders in the region.

Source: Kroll – Tendencias January 2010

Filed under: Argentina, Asia, Brazil, Central America, Chile, China, Colombia, Latin America, Mexico, Peru, Venezuela, , , , , , , , , , , , , , , , , , ,

Jim Rogers designated Senior Adviser to DCE Dalian Commodity Exchange

Mr. Jim Rogers, a globally well-known investor and financial professor, was designated the Senior Adviser to Dalian Commodity Exchange (DCE) on Oct. 21, 2009. During the grant ceremony presided by DCE Executive Vice President Mr. Li Jun, Professor Rogers accepted the letter of appointment from Mr. Liu Xinqiang, CEO and President of DCE and made a speech on “How I See The World Today” to over 700 ceremony participants who came from DCE member firms, students of Futures College and representatives from related industries.

“With his legendary investment experience and profound theory backgrounds, Mr. Rogers has his own unique insight and vision on global capital markets including but not limited to commodity futures. With Mr. Rogers as our Senior Advisor, we will be endowed with a more international vision on our strategic planning and market development; we will futher promote our undertakings of international cooperation and exchange, learn from the advanced experiences and ideas in the international community, keep up with the market trends, and maintain the vitality of the emerming market, so that the growth of DCE will be more internationally oriented and market oriented.” stated by Mr. Liu during the ceremony. He also expressed sincerest thanks to Mr. Rogers for his sustained support to the development of DCE over the years and expected that Mr. Rogers would work with DCE enthusiastically, share with DCE his unique wisdom and resourceful experiences, and contribute to the development of the exchange.

“As an adviser, I will do my best to help DCE to become one of biggest exchanges globally; and I firmly believe, as the world economic center is shifting from the West to the East, DCE could definitely lead the global derivatives markets in a certain time in the future.” said Mr. Rogers.

In recent years, DCE recorded a conspicuous progress in international cooperation and communication. Since 2003, DCE has signed Memorandum of Understanding (MOU) with 15 exchanges from United States, Canada, Brazil, Argentina, Japan, India, Malaysia, and Thailand. As a member of FIA and FOA, DCE is periodically invited to participate in important derivatives conferences in Asia, North America, Europe, and Latin America.

In the meantime, DCE receives an increasing number of visitors from international counterparts, government agencies, academic organizations, and relevant investment and financial institutions. DCE enjoys a growing influence and reputation in global futures industry.

Source: MondoVisione, 29.10.2009

Filed under: Asia, China, Energy & Environment, Exchanges, News, , , , , , ,

Coming Doom vs Coming Recovery

While unemployment, bankruptcy and defaults are growing and retail consumtion is falling,  financial institutions which just a few months ago where on the brink of collaps are claiming profits and  the media, analysts and government start claiming to have found the road to recovery.   Too good to be true?  Here are a few alternative view:


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China commodities index launched by Jim Rogers, Macquarie

The index tracks changes in the price of a basket of agricultural commodities most commonly consumed in China.

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Macquarie Funds Group and Jim Rogers have joined together to create an agricultural commodities index that reflects changes in food consumption patterns in China.

The Macquarie and Rogers China Agriculture Index is an investable index that tracks changes in the price of a basket of agricultural commodities most commonly consumed in China. Having posted a return of more than 11% for the month of December, the index outperformed most regional equity markets and other agricultural indices. Macquarie Funds, the asset management arm of Australia’s Macquarie Group, is launching the index now that it has a track record of two months since its creation in November.

The index is made of exchange-traded futures contracts on physical commodities that aim to capture the price impact of current and potential changes in China’s food consumption patterns. The index allows investors to keep a daily track on the price changes of the agricultural commodities basket. It also allows fund managers and other providers to issue financial products which are linked to an innovative and topical theme.

“Apart from being the world’s most populous nation, China is one of its fastest growing and as such, Chinese dietary patterns should play an influential role in determining the prices at which agricultural produce is exchanged.’’ says Harry Krkalo, Singapore-based head of retail funds sales for Macquarie Funds in Asia. “Developing an investable index which effectively tracks the price changes of commodities with reference to the quantities of each agricultural product consumed in China is an innovative and exciting way to invest in the sector.”

The index is the first one manufactured in Asia by Macquarie Funds, which is in the process of building its business in the region. As of end-September, the fund house had assets under management of $53 billion worldwide, including $1.5 billion sourced from investors in Asia.

“Macquarie is a leader in trading commodities futures. Jim Rogers has worked with other groups before but nothing specifically with China,” says Krkalo. “So when we put those bullet points down, a Chinese consumption-base product made sense and it is an interesting first index for us to roll out.”

In December last year, most major Asian equity indices including Nikkei 225, Hang Seng, MSCI Singapore, Kospi 200 and MSCI Taiwan posted positive returns, the largest of which was the Kospi 200 with a performance of around 6.2%. Commodities indices outperformed equity markets last month, however, with the Dow Jones-AIG Agriculture Total Return Index and the Macquarie and Rogers China Agriculture Index posting returns of approximately 9.8% and 11.6% respectively.

Macquarie Funds plans to launch, in the near future, a series of funds linked to the Macquarie and Rogers China Agriculture Index in the Asian region in addition to issuance in Switzerland.

“The investing public is still worried about where to put their money so any product launch for the next six months is going to be a carefully thought-out launch,” Krkalo says. “But this commodities index is interesting for both short-term and long-term reasons.”

Agriculture commodities have been sold off too heavily considering the demand for these goods, Krkalo says. The short-term opportunity stems from attractive valuations and, in the long-term, this asset class is expected to add value to investors’ portfolios, he adds.

Commodity tracking indices have generally been calculated based on supply side factors and commodity weightings are based on the global production. The Macquarie and Rogers China Agriculture Index is unique in the sense that component weightings are determined using actual and forecast data on consumption in China.

“Macquarie is one of the largest traders of agricultural commodities globally and Jim Rogers is one of the world’s leading commodity investors so it’s a great partnership,” says Matthew Long, Sydney-based executive director of Macquarie Funds.

Indeed, Rogers – who founded Quantum Fund with George Soros in 1970 and is now an independent investor – is best known these days for being a long time bull on China and commodities.

“I bought more (commodities) recently. I know that one of the few bull markets that I can see going up in the next five to 10 years is in agriculture,” says Singapore-based Rogers. “You may not have bull markets in cars or financial institutions or lots of other things but I know the world is not going to stop eating.”

After watching commodities markets suffer broad-based and drastic selling for most of the second half of 2008, a committee made up of Rogers and the treasury and commodities team in Macquarie Funds created the index, which went live in November.

“The index methodology is a refreshing way to approach investing in commodities and over time we believe that consumption patterns, particularly those of China, will increasingly influence agricultural prices. We expect the index to perform quite differently from existing agricultural indices,” Long adds.

The top three commodities in the index in terms of weightings are wheat, corn and soybean. The rest are coffee, cocoa, sugar, rice, palm oil, rubber, orange juice, soybean meal, soybean oil, cotton, canola and milk.

The Index incorporates the spot return of the underlying commodity contracts plus the discount or premium obtained by rolling over the contracts as they approach delivery. It is calculated on both an excess return and total return basis. Index constituents and weightings are potentially re-assigned annually and intra-annually in exceptional circumstances to account for current and potential future changes in China’s consumption patterns.

Source: AsianInvestor

Filed under: Australia, China, Energy & Environment, News, Risk Management, , , , , , ,

What Are The People Who Predicted the Financial Crisis Predicting Now?

There are only a handful of people who predicted this financial crisis, or at least its severity. What are they predicting now? George Washington’s Blog

Peter Schiff and Ron Paul

Schiff, the manager of over $1 billion dollars in investments, says the U.S. will enter a long period which could be worse than the Great Depression. Schiff also thinks that the economic crisis might lead to martial law.

He thinks that Asia and Europe, after a period of economic downturn, will “decouple” from the U.S., eventually enjoying great prosperity long before the U.S. recovers. Schiff has admitted that he did not foresee the current rally in the dollar, and his investors – long in Asian and European stocks – are way down. Schiff was Ron Paul’s chief economic advisor during his campaign. Paul has himself predicted the crisis for many years, and has warned that America is spending more than it can afford. Paul has also repeatedly warned of martial law.

Nouriel Roubini

Roubini, the PhD economist, thinks we are going to have what he calls “stag-deflation”, meaning severe stagnation and deflation. Basically, he thinks that we’re heading into a depression without extreme government action. He’s also warning of possible food riots.

Marc Faber

PhD economist Faber, who called both the 1987 crash and the current crisis, believes that there will be a bear rally for a couple of months, and then a further crash. He is convinced the U.S. will go bankrupt sooner or later. Faber also thinks that the crisis may spell and end for the traditional American form of government, to be replaced by martial law or some other unsavory form of government.

Nassim Nicholas Taleb

Economist, highly-regarded investment advisor, and one of the world’s foremost authorities on derivatives Nassim Nicholas Taleb, thinks that “capitalism I” is over, and things will get very bad before we get to a new form of “capitalism II”, where banks will act like utilities instead of money-making pirates. Taleb has warned that supermarkets may shut down. While he wouldn’t directly tell Charlie Rose how bad he thinks things will get, he did say he thinks things will be worse than Roubini is predicting.

Antal E. Fekete and Darryl Schoon

Professor Emeritus of Mathematics Antal E. Fekete and author Darryl Schoon think that our entire modern society will crash and break down (gold bugs, they believe all assets will crater except gold).

Afterword: The Greatest Depression

As an afterword, it should be pointed out that – while it was really bad – the Great Depression was not the greatest crash in history. Indeed, one writer describes the Great Depression as “a mild and brief episode, compared to the bank crash of the 1340’s . . . .”

That’s a stunning piece of information: the Great Depression was nothing compared to the crash in Venice in 1340. How can anything have been that much worse than the Great Depression?

Well, the 1340 crash ushered in the dark ages.

Now I don’t think anything nearly that bad is coming. But discussions about whether we are going to experience something as horrible as America’s Great Depression should not be taken in a vacuum. Unless our government stops messing things up and making them worse, things could get quite ugly.

Source: PrisonPlante.com, 09.12.2008

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