Now Cautious on markets at current levels: Jim Rogers

kosh

21 Sep, 2010

In an exclusive interview with ET Now, investment guru Jim Rogers says he would mainly be long on commodities because whether the world gets better or not, commodities are going to do well. But he does worry about stocks because the stock markets are currently pretty high around the world, including India.

Would you be cautious on the Indian markets at the current levels or does everything seem to be hunky-dory?

I am always cautious whenever I am doing anything. The US and the Japanese central banks are intended to print a lot more money around this time. Money supply in the US has grown nearly 8% a year in last months and the Japanese two weeks ago made it clear that they were going to print more money. So we have this money flowing into the world and obviously it is going into the market. Your government, your central bank are going to be more cautious and I hope they are, but in the meantime, the money is going to go somewhere and it is going into stock markets around the world.

How much the market can go up? What kind of an upside could this money really lead to?

I am cautious because as the markets go higher, either they are going to have to continue printing money or come to the currency market from the bond market eventually. My way of playing is to be long commodities because either way whether the world gets better or does not get better, commodities are going to do well. I worry about stocks because I only see the stock markets are pretty high around the world, including India.

Since you mentioned that you would be bullish on commodities, what is it that excites you right now if indeed equities as an asset class does not, especially in India? What is it in the commodity space that you like at this point of time?

Fortunately or unfortunately, depending on how you look at and many of them are going up a lot, cotton is making new highs, sugar has been growing up, and gold you know what has been going on in the markets. I would look at things that have not moved up this much. Buy silver than gold, for instance, if you want to buy precious metal. I would like to buy coffee than some of the things that have moved up so much, but there is still a huge potential. If governments are going to continue to print money, we are going to have higher prices for commodities though you may not have higher prices for stocks somewhere down the road, but as long as you require money, it is going in the commodities, among other prices.

Among commodities, you still believe that despite the run up that we have seen in gold, there is more headroom out there?

No, gold has got a long way to go over the next decade. Indian investors should not sell it. Gold is going to be much-much better off after two years from now.

In light of the fact that a lot of people are now talking about probably doing some defensive buying, would it be sensible to say that the road ahead would essentially lead to some bit of defensive buying in equity markets and even in the commodity markets, it would really be not too much of aggressive buying or speculative buying, but more of defensive bets being placed?

If I am going to do defensive buying, I would not buy stocks. If the world economy does not get better, stocks are going to fall apart, but commodities might seem to go up because of so much money being turned in and because shortages are developing. We have some serious shortages developing in many commodities markets. If the economy gets better, they are going to do well and if the economy does get better, they are going to continue to print money and money printing is always with commodities. So if I would do any defensive buying, I would start in the commodities market, not the stock markets.

Just academically, how would you place your portfolio right now? How would you divide a portfolio across asset classes whether it’s commodities, equities? If you were to allocate money across asset classes as per portfolio, what would be your break-up?

I would mainly be long on commodities and some foreign currencies, things like the Japanese yen, Swiss franc, and Canadian dollar. I would own currencies and commodities and I would probably have short in the stock markets.

If you were indeed to be bullish on certain commodities and I have seen a lot of people correlate stocks to those commodities as well, would you believe that could also be a good investment for somebody who is not active in the commodity space? If indeed commodities are the way forward, would the underlying equities also be something that you could probably prefer?

That is a way but then you have to be a very good stock picker. Many studies have shown you are better off buying commodities themselves rather than commodity stocks unless you are a very good stock picker. If you are great with finding companies that are going to discover natural gas in Mumbai, you should buy all the shares you can. But there are 100 natural gas companies in the world and we have got to get the right one. We have a big company in America called Enron , which was a natural gas company. It went to zero, it just went bankrupt. Natural gas, yes, it can go down, but it cannot go to zero. But be careful, if you get the right stock, you will make a lot more money, but otherwise just stick with the commodities.

What is it on the global front which if becomes effective or becomes a reality in terms of events could actually kind of pose a bit of a roadblock to the cartwheel that we are seeing over the last 3-6 months? Anything on the anvil, any dark cloud?

Anything on the horizon which could cause problems?

Yes, to the equity market run-up?

Many things have caused problems. Some Americans have problems in the markets, currencies, commodities, stocks and everything else. Some major companies could go bankrupt still. The UK suddenly surprises all and winds up in bankruptcy and many surprises are coming down the road. We have had some big moves in currency reselling and whenever that happens, somebody is obviously on the wrong side. So this can bring some more surprises coming in the world economy and you have get calls, it is going to cause problems and that may spread to the rest of it. I just hope I am not on the wrong side, and hope you are on the wrong side.

Given that you are very bullish on commodities, there is big correlation there to rising inflation across the globe. We have seen the Indian central bank raising rates, but your expectation is that other major central bankers also need to follow. So how big a concern is inflation in your mind and do you see that really hitting growth across?

I wish their central bankers were in the American central bank. The central bank, for a change, has been going more cautious and more realistic about what is going on in the world, but not just the US, Australia and Norway. Means several central banks have been raising interest rates routinely because they are not the only one. I mean, I am not the only one to face the inflation problems. Many countries have inflation and they worry about it, but they have it too. So I think your central bank has been doing a good job. I think they could do a better job. I wish that Indian central bankers were running the American Central Bank , whichever the ones we have.

What is your sense Jim, what could spoil the party right now even though we are looking at an equity market rally? There has been a rally in the commodity space, especially gold. What do you think in the global market environment are you most worried about that could perhaps dampen the momentum right now?

Well, I guess worries will be the most if there is some kind of crazy war efforts, somebody doing something foolish in the Middle East or elsewhere. I guess in the Middle East I would be most worried. But also the fact that just bonds are getting too much high. We have a bubble forming in bonds. Bonds are selling at much higher price and that bubble is going to burst some day. I do not know if it’s going to pop this year or in 2012. I have no idea, but it’s worrisome levels. And I do not know how much longer you can keep promoting a bubble like that. The central bank in the US is doing it. Eventually no matter how good a bubble looks, it pops and when it pops, people sell their bonds and that is going to happen. I just do not know when.

I have followed your comments for the last 3-3.5 years and correct me if I am wrong, but I have seen you being fairly bullish on irrigation stories in India or the water story in India so on so forth. The agri story is that still excites you as far as the Indian markets go?

Very much. Some sectors in the Indian and world economy are going to do well no matter what happens. Water is one of them. China has a huge water problem too. Agriculture has got a marvelous future around the world. We are seeing that in the agricultural prices.

So at this point given that we are celebrating or rather enjoying fresh highs on the Indian indices, India is the complete avoid as far as the equity market is concerned?

With regards to what I said before, I am sceptical about portfolio. I would long commodities and currencies, and short in stocks.

tenteddies

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