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Oil, which hit nearly US$150 this past summer, is trading under US$70 a barrel, and copper is trading as low as $1.66 (down from the $4.50 it was trading at this spring), as trillions of dollars in wealth are wiped from commodity markets here in the great market rout of late ‘08.
Investors are wondering whether or not to dump their commodity holdings. But if you don’t quite want to get rid of your Potash Corp. or Syncrude Canada Ltd., you’ll take solace in a recent appearance by Jim Rogers, the well-known commodities investor, at the 51st Annual dinner of the Chartered Financial Analysts Society in downtown Toronto.
Rogers, of course, co-founded the Quantum Fund with George Soros back in the ’60s. And today he is a successful investor and author. He’s become a poster child of sorts for this decade’s commodity boom and a developer of a well-known commodities-focused ETF.
He famously began talking up the fortunes of China after travelling extensively in Asia. (A specially built Mercedes he drove to every continent of the world in the early years of this decade was shipped in from a museum in California for the CFA event). And Rogers remains convinced that many in the West are underestimating the level of demand that is ultimately going to follow on the development of the world’s most populous country.
According to Rogers, the rise of the Middle Kingdom is not yet complete. The construction boom, which saw one quarter of the world’s construction cranes working in Shanghai in the middle part of this decade, has peaked. But the country is now ramping up its consumption of such items as grains and oil, as the Chinese work to bring their lifestyle up to western standards.
“Some of the best capitalists in the world are there,” says Rogers.
So sure is he of coming economic shift that he recently sold his mansion in New York and moved to Shanghai where he hired a nanny to talk exclusively in Mandarin to his young daughter. “They’ve now got the world’s best highway system. And they are working hard to increase their lifestyle,” he says.
All in, his take is that this commodity cycle is going to go until 2018 or 2020. “At that point the bull market in commodities will be over,” says Rogers. “But not before then.”
Only then, when China has completely emerged as a more fully developed economy, and the world has reached a new equilibrium with respect to supply and demand of commodities, will we see the demand for commodities slacken and the economic cycle switch back to favouring paper assets like corporate stocks and bonds.
Until then, it’s a commodity world, even though we are likely to experience a recession halfway through it.
“This is the worst credit bubble in world history and horrible excesses need to be burned off,” says Rogers. “But the fundamentals are still there for commodities.”
Rogers suggests that AIG and UBS were both big players in commodities. “But they’re being forced to sell, but for reasons other than fundamentals,” says Rogers. “I can see oil going to $50. But this is forced selling. It’s not selling on fundamentals.”
In fact, so convinced is Rogers of the commodities story that he has been buying agricultural products while selling U.S. dollars through this period. “The U.S. dollar is the most flawed currency in the world right now. I plan to sell all my U.S. dollar holdings on this boost. It’s losing its status as the reserve currency of the world,” said Rogers at a press conference before the dinner. “We owe the world $13 trillion and every 15 months we add another $1 trillion.”
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