Is it time for the market to crash? Legendary investor Jim Rogers joins Kitco News for an interview to discuss his predictions for the biggest financial crisis we’ll see in our lifetimes, and how he’ll be protecting himself. “Gold is going to be explosive in the next few years,” Rogers said, as he gave his insight on gold, the U.S. dollar, and the crypto-craze. You can catch Jim Rogers at Freedom Fest this August in Las Vegas.
An imminent economic crisis the likes of which this generation has never experienced is coming. However, the conditions under which the next bubble will burst will surprise even the most astute observers of economy, culture, and politics. The higher education bubble (one-sixth of the U.S. economy) will likely burst with the force of all previous catastrophes combined—a shock wave so sudden, so large, that it gathers the full force of the savings and loan, insurance, energy, tech, and mortgage crashes, creating a blockbuster-level perfect storm.
Disturbing patterns of unsustainable economic activity have emerged over the last decade. College and university budgets rely on inflated real estate investment, deny the short- and long-term effects of student loan defaults, accept the rise in tuition above the rate of inflation as normal, and expect a downsized part-time faculty to help subsidize inflated tenure track and endowed tenure budgetary lines. The insatiable upper administrative appetite for high salaries, job description absurdity, and low accountability adds endless layers of compulsive, prideful incompetence to an already unstable education business model that believes it simply cannot crash.
While higher education is not a business in the same way for-profit corporations are, a business plan rooted in reality remains essential to its success. Reality, however, seems an ongoing elusive concept to college administrators. Dormitories and sports facilities are funded regardless of flat enrollment rates. The mission of imparting knowledge to students (the service for which parents and students pay dearly) is shunted off to ill-paid adjunct faculty with no skin in the game. Students poorly equipped for real-world opportunities are unable to repay student loans, let alone become alumni willing and able to support their alma mater. How long until higher education’s customer base realizes the expense is no longer worth it?
Without dramatic and immediate changes in the higher education sector, broader economies that support third-tier learning will fail along with it: People in the community employed by the college will lose their jobs; commercial activity geared toward the student population will fail; and investment in real estate for student housing will no longer have its expected return.
We call for a return to the teaching and innovation mission of the American university. We need a well-educated, resilient, adaptable, and entrepreneurial graduate to meet the needs of a new “gig” economy, which includes coding, plumbing, elder care, sociology, food service, and hotel management. We demand higher educators meet the market and personal demands of the new student body.
And while the teaching model will necessarily be heavily invested in digital knowledge, we must look to a very old style of teaching. The system of tenured professors more interested in research than in imparting knowledge, buttressed by overworked and precariously employed adjunct faculty, does nothing to stabilize a higher education community. An apprentice/mentor system grounded in a proficiency model charged with technical, academic, and professional skill development and critical thinking objectives will revolutionize higher education.
We want our colleagues to focus on imparting the empathy that comes from interaction with other people, cultures, works of literature, and art, as well as the concrete and necessary skills for success in the post-college world of production, innovation, and hands-on work. We can deliver this high level of education while modeling what it means to have a true plan for paying for what is necessary. What better lesson could the American college graduate take with them into the working world?
Prolific investor. Contrarian extraordinaire. Investment banker. Best-selling author. Jim Rogers wears many hats, and is not tied down by labels or conventional wisdom, but has refused to bite the bullet when it comes to investing in start-ups, which he considers notoriously high-risk.
Yet, even Rogers appears to be joining the bandwagon going by his track record over the last 12 months, during which he has invested in four start-ups. He defends his decision and says his start-up investments are not about the capital. The entrepreneurs approached him directly, which got him interested, and Rogers is not changing his spots.
“These founders were smart people and they reached out to me and asked, would you invest with us, and I said yes,” he said in a recent interview.
Three of his investments in this space are Korean firms, including Standard Graphene, the country’s first manufacturer of graphene, a thin layer of pure carbon.
“Graphene, according to scientists, is going to be as important to the world as scientists. I did not say that, but scientists say it—it is thinner than paper and stronger than steel and they can even use (it) to purify salt water. I have been bullish on graphene for a long time, and all of a sudden an entrepreneur in this space shows up—he has been in this business for a while, and therefore I put in some small amount of money,” Rogers explained.
Rogers has also invested in two fintech start-ups—Korea’s Wealth & Liberty, which provides financial advisory services using a robot adviser, and Chinese online brokerage firm Tiger Brokers. The latter was also his first investment in a Chinese start-up.
Rogers said he is “investing in the founders” and not the companies. “I know nothing about fintech. But I found these were smart people and they contacted me directly,” he said.
Tiger Brokers, which allows Chinese investors to buy stocks from the US and Hong Kong, recently disclosed a funding round worth $14.5 million, the third for the company since it was founded three years ago. Rogers declined to state the amount he had put into the company, whose other investors include heavyweights such as Xiaomi Technology, China Growth Capital, and Citic Securities.
His logic behind investing in Tiger Brokers: “I know the Chinese are going to be huge forces worldwide in the financial markets for the rest of the century.”
Rogers’ first start-up investment was in 2016, when he invested an undisclosed amount of capital in Illimus, a Korean cosmetics company.
His investment was based on the fact that he found its founders were “smart and driven”, rather than the company’s prospects.
“If I lose all my start-up investments, it is not the end of the world. The way I look at it—if these investments come to nothing, I won’t even notice. I don’t pay any attention to my start-up investments,” he added.
But as an investor, by keeping away from start-ups, did he pass up on the opportunity to make huge returns over the last few decades?
“Many of the start-ups have become gigantic, or will become gigantic in the next 20 years. But thousands of start-ups have disappeared in the last 20 years. We remember Facebook because it is successful, but we don’t remember MySpace—it was a gigantic failure backed by unbelievably smart people with money including (News Corp. chief Rupert) Murdoch.”
“Ask me again in 10 years, and even 10 years later, I don’t think I will have many more start-up investments than I have now. Maybe some really smart guy or woman comes and meets me, I may do something, but I am not changing my spots and my start-up investments are all coincidental,” the veteran US investor, who now lives in Singapore, added.
When Jim Rogers talks, investors listen. One of the world's most famous investors, Rogers is known for his no-nonsense style and investment wisdom. He is the author of several best-selling books, including his latest, "Street Smarts: Adventures on the Road and in the Markets." ETF.com recently spoke with Rogers for his take on the latest financial market developments.
ETF.com: I saw some headlines recently that you foresee an economic downturn on the horizon. Can you get into that?
Jim Rogers: The next time we have an economic problem in the U.S.—and therefore the world—it’s going to be the worst of our lifetime given what’s been going on.
The world has been printing a lot of money and the whole world has a lot of debt. In 2008, we had a problem caused by too much debt, but now the debt is much larger than it was in 2008, so the next time we have a problem, it’s going to be even bigger than 2008.
ETF.com: When do you forecast the downturn to take place?
Rogers: I would suspect it’s in the next year or two. Historically, we’ve had economic problems every four to eight years. As you know, it’s been over eight years since our last problem. It doesn’t mean we have to have problems, but it means we’re getting closer and closer.
ETF.com: What’s your take on the fixed-income markets?
Rogers: Given what's happening in the world and with central banks, I don't see any reason government bonds in the U.S. should go down. But I am short junk bonds—not that it’s doing me much good yet.
ETF.com: What are your latest views on oil and gold?
Rogers: My view on oil is that it’s in the process of making a complicated bottom. We’ll look back in a while and see that in 2015, 2016, 2017—and maybe 2018—that oil made its bottom. Worldwide reserves continue to decline except for U.S. fracking, and fracking isn’t doing great at these prices. That doesn’t mean oil can’t go under $40 again. As I said, the bottoming process takes time.
ETF.com: What about gold?
Rogers: I haven’t bought any serious gold in a long time. I own gold and I haven’t sold any. I expect gold to go lower—at which point I hope I’m smart enough to buy a whole lot. If it doesn’t go lower, I’ve got plenty of gold already, I assure you. Before this is all over in the next few years, gold is going to go much, much higher. Whenever people lose confidence in governments and paper money, they always put their money in gold and silver, and they will again.
ETF.com: How should investors position themselves for the coming economic downturn?
Rogers: I own Russia and I’m looking to buy more. The Russian market is still a very hated market. I also own China; the Chinese market is down 50% from its all-time high. I own Japan, which is also down 50% from its all-time high.
Who knows how long I’ll own these things, but they’re likely to be less badly affected by the economic downturn. There are also plenty of ETFs now where you can sell short, which is another option.
I also own a lot of U.S. dollars at the moment, not because U.S. dollars are a sound or compelling investment, but it’s because when there’s turmoil, people look for a safe haven. At the moment, people think the U.S. dollar is a safe haven. It’s not. America is the largest debtor nation in the history of the world.
But people think the U.S. dollar is a safe place to be, so I own a lot of dollars—with the expectation it’ll get overpriced, maybe even turn into a bubble down the road. Hopefully when that happens, I’ll be smart enough to get out of my dollars and put the money somewhere else.
Preston Pysh: First thing I want to talk about is gold. You have a position in gold, but you are hesitant to increase that position right now. Currently, we are in the second quarter of 2017. What are some things that would change this decision for you?
Jim Rogers: Price is the main determinant, or time — if it was 2019, I might rush in and buy gold. For me, gold has not had enough corrections yet. There are still too many gold bugs.
Pysh: So you are looking at it more from a psychological perspective. Would you say that the right time to buy gold is actually when there are a lot of people avoiding gold?
Rogers: When people say, I never want to invest in gold again, that is when I want to invest in it. This is true of many things. When everybody is throwing it out the window, that is usually a good time to buy anything including gold. So far, there are too many people that love gold.
Pysh: I was expecting you to give a quantitative answer, but I am surprised that you gave such a qualitative answer.
Rogers: Investing is both qualitative and quantitative. I wish it was simple, but investing is a combination of everything, for gold and everything else. Gold has been around for thousands of years, so it has gone through many periods of bull and bear markets. Many people think of gold as a currency, but it is just another investment.
Pysh: What do you think is the best approach to gold? I am thinking the best way would be to put a two and a half year call option on some gold mining companies. What do you think?
Rogers: A two and a half year call would be fantastic if you can get the timing right at the bottom. You have enormous leverage with calls. You could do this with futures as well. If you get the timing and the product right with either calls or futures, you can make a lot of money.
Stig Brodersen: You have been the forefront of various markets. For example, you wanted to buy the Danish Krone when it seemed like nobody even knew about it. How do you come up with such original ideas, and how do you validate your ideas before you actually invest in them?
Rogers: I have learned that the more people ridicule and question you, you are probably onto a good thing no matter what it is. If you are observant and notice a change and that change is something cheap and ignored in the way that the Danish Krone was in the past, you are probably going to make a good investment.
Pysh: Which area of the U.S. market — currencies, commodities, bonds, stocks, etc. — could a person apply that thought process to a pick?
Rogers: Whatever people are doubting may be an investment opportunity. Agriculture in the United States is pretty depressed right now. This may be an area where there is an investment opportunity. However, you should be cautious about investing in an area just because it is depressed right now because that area could stay depressed for a very long period of time. This is why you have to find a change that is taking place as well. If you can find something cheap and if you can find a positive change, maybe you should do more homework and find an investment.
Brodersen: Could you talk about catalysts? Some people would say value in itself is a driver, but how do you assess catalysts and when do you see that something is about to change so it will realize its intrinsic value?
Rogers: That is the important part. I have learned that personally, I am usually too early. I see something happen, and I assume everybody else sees it too. Now I know that they do not, so I have learned to wait a year or two. The change, or catalyst, could be anything. I want to emphasize that even when you see the catalyst, it is futile if everyone else sees it too and the effects come in quickly. It usually takes a while for the catalyst to work its way through.
Pysh: In your book Street Smarts, you talk a lot about the idea that the capital flows are drastically changing from what the U.S. has experienced over the last 75 years. You feel that a lot of big opportunities have moved away from the U.S., Europe, and Japan now to China, Singapore, and most of Asia. Do you perhaps see this trend in a similar light as Ray Dalio with long-term credit cycles?
Rogers: Ray is a lot smarter than I am, but I do perceive that the world is always changing. What you think is true today will not be true in 15 years. Pick any year in history, and what everyone believed that year is no longer relevant 15 years later. In an even bigger picture than a 15-year cycle, Asia is rising whether we like it or not. Asia is where the money, energy, ambition, drive, and the brains are. China currently puts out something like 10 times as many engineers as America does. This may not have an immediate effect, but it will have an effect someday. In 1807, the smart people moved to London. In 1907, the smart people moved to New York. Well in my view, the 21st century is the century of Asia
Pysh: Do you think the central banks are the root cause of this trend?
Rogers: We have not had central banks for the most of history, but a lot of what is happening right now is because of central banks. The United States has had three central banks; the first two disappeared, and in my view, this one is going to disappear too because they are making so many mistakes. Regardless, central banks are a powerful influence in the world right now. They have a lot of money, and therefore a lot of influence, so a lot of what is happening in the world is because of central banks for better or for worse.
Pysh: Considering the U.S. Federal Reserve’s policies, how is the dollar getting stronger against other currencies? Are other central banks just doing worse than the U.S. central bank?
Rogers: You are right, part of the reason why the U.S. dollar is so strong is that the other countries’ central banks are so bad. The head of the Japanese central bank said they will print unlimited amounts of money if they have to. Anybody thinking about the Japanese yen has to think about unlimited amounts of money along with staggering internal debt. The Euro is a wonderful concept but its execution has been hopeless. Although the U.S. dollar is a terribly flawed currency, many people consider it a safe haven for historic reasons. You look around the world, and there are not many better alternatives. People put money in the U.S. dollar, and the dollar is going to get overpriced as the turmoil worsens.
Pysh: The central bank of Japan owns a large portion of the world’s stock market. When Japan runs out of assets like bonds and stocks to exchange into currency, are we going to see the currency in hyperinflation?
Rogers: Japan is unique because they have somewhat of a closed society and economy. They can continue to trick each other for a long time that everything is great. The media and the emperor will tell the people that everything is fine, and the people will believe that. I do not know when it is going to happen, but we have had economic problems every 5 to 10 years since the beginning of time. We are going to have problems again no matter what the press says. The media and the emperor can keep telling the Japanese people that everything is fine, but it will end badly whether we like it or not.
Brodersen: It appears that most Northeast Asian economies that have done well follow the steps of cultivating land, manufacturing the resources, and making policies that support agriculture and manufacture. India, however, skips the steps and goes straight into IT and more advanced services. How do you view the sustainability of the Indian economy?
Rogers: There are one billion Indians. You and I know about the IT in India, but that is such a small part of the Indian population. The Indian government loves to say things are great, but when you actually visit the country, you will see that things in India are not that great. I have occasionally invested in India, sometimes get it right, and usually have gotten it wrong because of the timing. India has a lot of debt that the government does not like to talk about. The debt to GDP ratio is very high in India, which means that they cannot grow at a rapid rate.
Brodersen: What is the driver for sustainable growth for a country like India with low employment rate in manufacturing?
Rogers: Unfortunately, I do not see a lot of sustainable growth in India. We never see Indian products in the U.S. market. I doubt you could name more than one or two Indian-brand products in your home. This is because they have not had great manufacturing success. India used to be one of the great agriculture countries in the world because of its soil and weather, but the government restricts the Indian farmers to owning only 12 acres. They cannot compete with other farmers who own a lot more land. The Indian government protects many parts of the economy. This is one of the reasons that India has not done as well as others.
Pysh:In the time that you were working with George Soros, what would you say was his greatest strength? What would you say your contribution was in the relationship?
Rogers: I left 37 years ago and have not had contact since. We were both dedicated and passionate about our work. He was a great market timer. I do not think you go to school to learn to become a great trader; I think you either have it or you do not. I have no idea what he has been doing these days, but back when we worked together, I did a lot of the research and reasoning for a position. In the first 10 years of our work, our return was 4200%.
Brodersen: You are a very modest person, but could you tell us what you think your competitive advantage is as an investor?
Rogers: I had success whenever I found things that were very cheap where there was positive change taking place. I usually invested too early, but I held them for years. If I have any competitive advantage, it would be that I can see things changing. I make a little bit of money when I get the timing right. - Source, Forbes
Should people be fleeing to the dollar for protection? Will it be the safe haven that everyone thinks it will be in the next crash, or, as many prominent analyst are now prediction, will it be a death trap? Jim Rogers goes into depth in this interview and explains this, plus much more.
Legendary investor Jim Rogers sat down with Business Insider CEO Henry Blodget on this week's episode of "The Bottom Line." Rogers predicts a market crash in the next few years, one that he says will rival anything he has seen in his lifetime. Following is a transcript of the video.
Blodget: One of the things I’ve always admired about you as an investor is that you don’t talk about what should be. You figure out what is going to be and then you do that. So what is going to be with respect to the stock market? What’s going to happen?
Rogers: I learned very early in my investing careers: I better not invest in what I want. I better invest in what’s happening in the world. Otherwise I’ll be broke — dead broke. Well, what’s going to happen is it’s going to continue. Some stocks in America are turning into a bubble. The bubble’s gonna come. Then it’s going to collapse, and you should be very worried. But, Henry, this is good for you. Because someone has to report it. So you have job security. You’re a lucky soul.
Blodget: Well, yeah, TV ratings do seem to go up during crashes, but then they completely disappear when everyone is obliterated, so no one is hoping for that. So when is this going to happen?
Rogers: Later this year or next.
Blodget: Later this year or next?
Rogers: Yeah, yeah, yeah. Write it down.
Blodget: And what will trigger it?
Rogers: Well, it’s interesting because these things always start where we’re not looking. In 2007, Iceland went broke. People said, ‘Iceland? Is that a country? They have a market?’ And then Ireland went broke. And then Bear Stearns went broke. And Lehman Brothers went broke. They spiral like that. Always happens where we’re not looking.
I don’t know. It could be an American pension plan that goes broke, and many of them are broke, as you know. It could be some country we’re not watching. It could be all sorts of things. It could be war — unlikely to be war, but it’s going to be something. When you’re watching Business Insider and you see, "That’s so interesting. I didn’t know that company could go broke." It goes broke. Send me an email, and then I’ll start watching.
Blodget: And how big a crash could we be looking at?
Rogers: It’s going to be the worst in your lifetime.
Blodget: I’ve had some pretty big ones in my lifetime.
Rogers: It’s going to be the biggest in my lifetime, and I’m older than you. No, it’s going to be serious stuff.
We’ve had financial problems in America — let’s use America — every four to seven years, since the beginning of the republic. Well, it’s been over eight since the last one.
This is the longest or second-longest in recorded history, so it’s coming. And the next time it comes — you know, in 2008, we had a problem because of debt. Henry, the debt now, that debt is nothing compared to what’s happening now.
In 2008, the Chinese had a lot of money saved for a rainy day. It started raining. They started spending the money. Now even the Chinese have debt, and the debt is much higher. The federal reserves, the central bank in America, the balance sheet is up over five times since 2008.
It’s going to be the worst in your lifetime — my lifetime too. Be worried.
Blodget: I am worried.
Rogers: Good. Good.
Blodget: Can anybody rescue us?
Rogers: They will try. What’s going to happen is, they’re going to raise interest rates some more. Then when things start going really bad, people are going to call and say, "You must save me. It’s Western civilization. It’s going to collapse." And the Fed, who is made up of bureaucrats and politicians, will say, "Well, we better do something." And they’ll try, but it won’t work. It’ll cause some rallies, but it won’t work this time.
Blodget: And we are in a situation where Western civilization already seems to be possibly collapsing, even with the market going up all the time. Often when you do have a financial calamity, you get huge turmoil in the political system. What happens politically if that happens?
Rogers: Well, that’s why I moved to Asia. My children speak Mandarin because of what’s coming.
You’re going to see governments fail. You’re going to see countries fail, this time around. Iceland failed last time. Other countries fail. You’re going to see more of that.
You’re going to see parties disappear. You’re going to see institutions that have been around for a long time — Lehman Brothers had been around over 150 years — gone. Not even a memory for most people. You’re going to see a lot more of that next around, whether it’s museums or hospitals or universities or financial firms.
Indian markets are at record highs. What is driving this rally? Is there more steam left in this rally, or will the party be over soon?
It is not just Indian markets—what is driving Indian markets is also driving other markets. There are massive amounts of money around, and it needs to go somewhere, and it is going into the markets. India is not the only one going through the roof—look at Europe, America. The central banks have made a lot of free money available—Mr (Donald) Trump has told everyone that everything is going to be OK, and he is come up with some policies which people think will be good such as cutting taxes and building infrastructure… That is why markets in many countries are going up—I think the party will end soon, but I am very, very bad at timing it.
Are Indian markets expensive at this point? Why or why not?
I don’t know the Indian valuations currently. The problem is when the markets start going down, it doesn’t matter if they are cheap, or expensive—all of them will go down. I don’t know of anything that is really cheap in India.
When and by how much do you see an earnings recovery happening for Indian companies?
That is one of the problems—an earnings recovery has not taken place and the markets are going up. This is a problem globally because there is a lot of free money and easy money, and then there is optimism about tax cuts in the US—that is the worry for me—that all of this is not real and is based on free money. Free money, while it lasts, is wonderful, but it always come to an end.
Where does India stand in your EM/Asia preference? Why?
India is not the preferred market for me—it is at an all-time high. I’ve told you before that I don’t prefer to buy when markets are at an all-time high. I don’t want to get on a moving train—when you jump onto it, you’ll get hurt. You won’t get hurt if you buy something that is ignored and sitting in the corner—you’ll not make any money for a while, but you won’t get hurt.
Will Donald Trump’s tax cut plans impact emerging markets in a big way? How much impact do you see on Indian information technology (IT) and pharma sector from visa restrictions and protectionist policies?
If it happens, and Trump does what he says, it is good for the world, because it will revive many parts of the American economy.
When people have more money to spend, they will do it... everyone will be better off for a while, and that is why the markets are going up.
Trump says he will cut taxes and that sounds very good. But how is he going to do all this? Protectionism has never been good for anybody. No one has ever won a trade war. Every one will suffer with protectionism, and if Indians cannot go to America anymore, it may be bad for Indian companies, but it will be good for India.
The smart Indians won’t be rushing to the US any more—they will stay in India and build companies. Or maybe, they will go to China or Germany—but in the end, it will be better for India than the US.
Are geopolitical being risks ignored by global investors?
Be it India, America or Europe—everyone is of the view that there is nothing to worry about... Interest rates going up is a big risk. Historically in the US, when the Fed raised interest rates four times, it was the end—the markets and the economy would then go down. Now, there are people who argue that it historically was correct, but it is different now as interest rates are zero; so maybe we can have a couple of interest rate hikes before the end.
What are the key risks to this rally in emerging markets, particularly India?
Remember, whenever markets are going up, people ignore the bad things. You can go and say that the emperor has no cloths and people don’t care. They are so happy with all the money they are making.
There is no question that the next time the world is going to have economic problems, it is going to be the worst that we’ve ever had since the Second World War, and a lot of people are going to be very angry.
Already a lot of people are very angry—there are a lot of people who cannot get jobs, and they have been waiting angrily for what they’ve been promised.
It usually takes a year or two after the markets collapse for that anger to build up—if say the markets collapse in September this year, by the September of 2019, you are going to be having a lot of very, very angry people.
Which sectors in India are you overweight and underweight, and why?
It depends on the prices—as I am not invested in India currently, I don’t know. But there are parts of the Indian economy that I am optimistic about for the future. Indian agriculture, Indian tourism, and these have a good future when the time comes down the round.