Jim Rogers is an investing legend, a world record holder and a best-selling author. He co-founded the legendary Quantum Fund with George Soros, which generated returns of more than 4,200 percent over ten years. Jim retired at 37, and later drove around the world… twice.
He’s one of the founding fathers of the boots-on-the-ground approach to investing in emerging and frontier markets around the world.
I recently sat down with Jim – a fellow resident of Singapore – to talk about markets. Below is an extract of that conversation, about biggest threats investors should be worried about today… and how they should protect themselves.
Washington and the central bank
Kim: Jim, what do you view as the biggest threats to markets?
Jim: Washington, D.C. is the major threat to all of us because they want to do things like [start a] trade war. And they want to get in a war with somebody, whether it’s Iran, North Korea, whoever. But North Korea’s calmed down. Mr. Moon in South Korea has done a very good job. There’re lots of people that are bashing Russia. I have no idea why they’re bashing Russia. …
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And the central bank in America, they’ve brought up gigantic debts on their balance sheet, they’ve push interest rates to the lowest in recorded history. Interest rates have never been this low anywhere in the world. With the result that debt has skyrocketed everywhere in the world. Interest rates are going to go higher again, they’ve already started.
So what I’m afraid is going to happen is as interest rates rise, you’re going to see problems in the markets. Everybody’s going to call the central bank and say, “Oh, you must rescue us.”
Now, the central bank is made of bureaucrats and academics, they don’t know what they’re doing. They will panic, they will try to rescue us. I don’t know what they’ll do, print more money, buy assets, whatever they’re going to do is not going to be the right thing. And so we’re going to have worse problems.
I hope I can survive the next bear market because it’s going to be horrendous and it’s going to be a big mess. It’s going to be the worst in my lifetime.
When I say that, some people say, “Well, you’re gloom and doom.” No, we’ve always had bear markets since the beginning of time. Janet Yellen, who was the head of the central bank in America until recently, said, “No, we’re not going to have bear markets ever again. We solved the problem.”
She said we’re not going to have bear market. I know we are. 2008 we had a bear market, it was horrible because of too much debt.
Well, Kim, debt all over the world is much, much, much higher now. People have talked about austerity, nobody’s practicing austerity. It’s going to be a horrible nightmare. And I hope I survive it, I hope we all survive. But I know just having read enough history that a lot of people are not going to survive it.
Exploding debt around the world
Kim: You’ve often talked about the explosion of debt in markets. Can you tell me some more of your thoughts on that?
Jim: Well, Kim, as you know, debt worldwide has boomed in the past 30 years, but especially in the past 10 years. In 2008, the world had a big problem because of too much debt. Since 2008, the debt has skyrocketed everywhere. And so the next time we have a problem, it’s going to be a doozy. I mean, the Federal Reserve alone in Washington, its balance sheet is up by 500 percent in 10 years. It’s staggering what’s been going on in the world. No matter where you look.
In 2008, China had a lot of money stored for a rainy day. It started raining, China started spending the money and helped rescue the world. But even China has a lot of debt now. You’re going to see bankruptcies in China the next time the world comes to an end. And that’s going to surprise a lot of people… it’s going to surprise me, and I know it’s coming. I’m telling you, it’s coming. But it’s going to surprise a lot of us, and that’s just going to make the bear market even worse.
The looming trade war
Kim: What are your thoughts about the U.S.-China trade war?
Jim: Mr. Trump for many years has been keen on trade wars, so it seems to be in his soul, in his psyche. He said that trade wars are easy and are good. That’s totally inaccurate. But it doesn’t matter, he’s the president and even if he has wrong information, which most politicians do, he will do what he can get away with. And so he wants trade wars, the people around him that he keeps bringing in, they’re all keen on trade wars. Nobody has ever won a trade war, but they don’t know that. And if they know that, Mr. Trump thinks he’s smarter than history, he can control history. I don’t think he is, but we’ll find out.
If it happens, then when the problems start coming, it’s going to be worse than any of us can imagine. It’s not going to be good.
You’ve seen previous trade wars, nobody has ever won. They’ve never helped anybody. Maybe some in the short term. But even when trade wars help some people, they hurt other people even in the same country. So they may happen. If they happen, you’re going to have a lot of readers because everybody’s got to know what to do. You have job security because somebody has to report it and somebody has to tell us what to do.
How to protect yourself
Kim: In anticipation of all of this eventually happening, what does the cautious investor do today to protect or insulate himself?
Jim: Well, they should read your newsletter. Everything I know I learn from you guys, for goodness’ sakes.
Also… agriculture is probably going to do well, even if the world comes to an end, because agriculture has already been going down the tubes for 35 years now. Agriculture has been terrible. I would suspect that’s a place to rescue yourself.
Probably the best thing to do is to become a farmer. I’m not going to become a farmer. But if people want a new life outdoors, especially in China, the Beijing government is doing everything it can to help farmers and to help the countryside. So agriculture especially China, is a good place to be.
I own U.S. dollars. I own a lot of U.S. dollars, not because I have any confidence or faith in the U.S. dollar. America’s the largest debtor nation in the history of the world, and the debt’s going higher and higher.
But when there’s turmoil, people look for a safe haven.
People think the U.S. dollar is a safe haven, and it is less bad. At least, people think it’s less bad than things like the euro, the Swiss franc, the British pound. So where else are they going to go?
What will happen is U.S. dollar will get overpriced, maybe turn into a bubble, depending on how bad the turmoil is. And I hope at that point I’m smart enough to sell.
Probably what will happen is as the dollar goes higher, gold will go down, all currencies will go down, including gold. Gold usually goes down when the dollar goes higher.
Maybe the Chinese renminbi will be convertible by then. Who knows? Those are some of the things that often happen when the dollar goes higher and there’s crisis.