Seminar by Jim Rogers
[Presentation style was to show just a few slides, make some basic comments on a subject and then elicit questions from the audience. Therefore most of the points culled from the presentation are the answers given to questions from the audience]
* Just as U.K. was the strongest economy in 19th century and the US in 20th century, China will be the strongest economy in the 21st century.
* Chinese are the ‘best capitalists’ in the world. They invest over 40% of their income. In contrast US, invests less than 2% of their income. In fact, today there is negative savings in US
* Even though China is a growing economy there will be setbacks.
* I see problems in real estate at the end of the year in China.
* The biggest development possible is the interaction of China and India and their becoming friends. This will create Asia into a powerhouse.
* I have a daughter, 2 years old, who has a nanny who teaches her the Chinese language. If one wants to succeed in 21st century one will have to learn the Chinese language.
* The US Dollar was the reserve currency for 60 years. Today, dollar is depreciating against other currencies. US economy is slowing down. It is the largest debtor nation in the world. The debt today stands at 8 trillion dollars. Increase in debt is taking place at the rate of 1 trillion dollars every 15 months.
* In 80s and 90s, there was a great market for bonds. It peaked in 2003. Now, it is in decline on account of a rising interest rates scenario. For next 15 years, bonds is not the place to be in. Stocks are extremely expensive in the West. In India too the valuations are a concern and Sensex would also operate in a trading range.
* Today, one needs to be in the commodities market. That’s the place to be for the next 10-15years.
* India is just developing. 25 years ago people didn’t understand what mutual funds were. Today, everyone is buying stocks and mutual funds.
* Worldwide, there are over 70,000 mutual funds for shares whereas there are fewer than 10 for commodities.
* Historical analysis has shown that there is an inverse relationship between stocks and commodities. When stocks do badly then commodities do well and vice versa.
* The shortest bull run for commodities lasted for 15 years while the longest lasted for 23 years. The average bull phase would therefore be about 19 years.
* The whole analysis revolves around demand and supply. There has been no gigantic oil field discovered in the last 35years. The last lead mine was discovered around 25 years ago. Current exporters like Malaysia and Indonesia and other exporting nations will soon start importing oil. Oil fields and mines will deplete. When the supply is affected and the demand in commodities will rise then this will lead to a bull phase in the commodities market. Those who have raw materials and other natural resources and can manage them well will own the future world.
* The Saudi oil reserves were estimated in 1979 to be about 245 bn. barrels. From 1988 till today the Saudi government has consistently quoted the oil reserves figure at 260 bn. barrels. It’s always the same even though one knows that since 1979, 63 bn. Barrels have been consumed per annum. Every oil producing country is experiencing depletion of oil reserves. So there’s something wrong in reporting the figure of 260 bn. barrels of reserves as constant.
* As commodity prices go up, bonds become less attractive. It takes a long time to bring in the extra capacity for commodities. For instance it takes a long time to discover oil reserves or a lead mine. But once discovered then the capacity lasts for a long time.
* There is more money to be earned in commodities themselves rather than in commodity stocks i.e. Companies involved in commodities. For instance natural gas has tripled in the last 3 years whereas Enron which was in natural gas went bankrupt.
* There are no stable currencies today. The Canadian dollar is strong. Canada has had a balanced budget for the last 8 years and is rich in natural resources. I don't expect the Euro to last beyond 15 years. The Singapore dollar is very reliable today. The Australian and New Zealand economies are natural resource based and are sound. Though it is difficult to believe but I feel that Brazil will do better than many countries in the future since it has large natural resources.
* When dealing with a broker it is better to have segregated accounts. One is also less likely to lose in the commodity market because the commodity brokers have to put up the money the same day while the stock broker has 3 days.
* One needs to buy cheap when nobody is talking about it. One will be careful to buy shares just now in India since everybody is investing in shares.
* When interest rates go high shares will get hurt. In the U.S. Interest rates will go higher in the next year or two.
* India needs to open up. It is the worst bureaucracy in the world besides Pakistan and Bangla Desh. India needs to open up its agriculture, stock market and make its currency totally convertible.
* One needs to be cautious about the stock market when foreigners start coming in. That is the time to sell not buy. Chinese stock market was declining for many years but will now start looking up. Myanmar which has been isolated for 44 years will open up. East Timor, Angola, Ethopia, Tanzania will start doing well. Europe will have problems because of bad demographics.
* Phelps Dodge owns the 2nd largest copper mine in the world. It will not open up a new mine. It will concentrate on its current mine. This is true of all mining companies. The ones who have made it to the top in these companies are the ones who were cautious. They did not do any exploration. Those who did got fired.
* One needs to buy the Index Funds instead of investing in specific commodities/stocks directly. 80% of the time the index funds out perform the direct investment.
* While investing in stocks the ratios relevant for analysis are P/E ratios, Dividend yields, Price to book value etc.
* One needs to look at iron ore rather than steel. I am more optimistic on paper than steel though I have not invested in either of them as I believe that there are better options in other commodities as mentioned earlier.
* In the last 30 years, lead has not been used in petrol and paint and yet it is doing well. The supply is going down even though there is no demand increase. One needs to look at demand and supply simultaneously.
* Worldwide sugar is projected to at least double in the next 5 years. Cotton is 50% below its all time high. And yet there is not a single article in Fortune magazine on commodities.
* In a bull market, it is better to buy and hold. If one is a good trader then one can buy and sell and make a profit.
* Crude oil is going up like a rocket. Be careful. But buy at $40.
* One can say that inefficiencies in China are promoting demand. However as China becomes more efficient there will be an increase in demand and the commodities supply will not be there. So commodities will be the market to be in.
* Brazil has started exporting ethanol. Cars will run on ethanol. Sugar is being converted to ethanol. There will be more demand and less supply of sugar.
* Rarely in history stocks go up without setbacks or correction.
* Stocks went down in Japan though Companies’ profits went up. The stocks were overpriced. The bad market phase in Japan ended in 2003.
* Today, 45% of Japan’s trade is with Asia and 20% with America. It was exactly the opposite 13 years back.
* Japan’s capital flows into Asia will increase. In fact the capital flows within Asia will increase.
* Even though real estate is a bubble in New York still there are areas like Idaho and Okhlahoma where real estate is not a bubble. If everybody is investing in New York then that is a sign that there is a bubble in the making.
* All assets increase. Central banks become too loose with cash. Sometimes it is better to keep cash. Cash is one thing which nobody wants. It will appreciate.
* If an unforeseen event like bird flu takes place then everything will be affected. It can even throw the world into recession depending on the number of persons affected.
* If there is peace between China and Taiwan then invest in Taiwan. Asian banks hold dollar reserves in spite of its decline. This is because of a bureaucratic mind. South Korea is changing. It is not supporting the dollar.
* US government, nation, consumer is over-extended. The best engine of growth is savings and investment and not consumption. Consumption is not sound growth.
* US will have a recession this year or next year. This will affect Asia but Asia is doing incredibly well. Asia would continue to grow but the effect of US recession will reduce the pace of growth.
* In China and India, if everyone has a scooter then there will be a demand for lead batteries. But no lead mine has been discovered. And nobody has discovered a substitute.
* It is a lot easier to analyze and understand commodities than stocks because stocks have a lot of external influences which need to be looked at like the government’s policy and the central bank’s pronouncements etc.
* If politicians mean what they say, India can have a bull run for the next 15 years.
* Most mergers and acquisitions are not good except for Wall Street. As a share holder one needs to hold the shares for a short while till the shares appreciate because of the merger and then sell. Or if one is an investor get the cash and don’t invest in the surviving company.
* When managements get exuberant then mergers take place. Avoid the need for diversification which could lead to buying companies in industries which the current management knows little about. Most mergers don’t work. There is a clash of cultures, managements and different styles.
* One needs to get involved in companies with better margins. Another area to look at is capital expenditure, advertising and R&D. One needs to know the trend in the expenditures in these areas which gives one an idea whether the company is being stripped or dressed up or being invested in for growth. Most mergers don’t add value. Also when buying look at interim earnings and debt maturities.
* Tourism in India is going to be big. The Chinese have started to travel. UK and Europe are realizing this and promoting their countries to them. However, the Chinese will come a lot to India because it is nearer and cheaper and because of the growing friendship.
* Commodity exchanges merging because of volume is good for the investor. It makes things more efficient and gives the investor a place to buy and sell.
* The most obvious fact which the world can see is why doesn’t Taiwan with its capital and expertise make peace with China with its cheap manpower and large market. Sometimes the most obvious from outside is difficult to see from within.
* In China, if you want to do anything you can pretty well do it. This is not so in many of the other Asian countries because they have closed to that extent. The currency of China (Rinminbi) will replace the dollar.
* Today, Russia has 15 countries which will break up further into 50 countries. There is outlaw capitalism which is being practiced there. The Mafia strips assets and there is hardly any investment. It will gradually disintegrate. The military is hardly in power. Chechniya is a small country with a population of just 1 mn. and the army cannot control it for the last 10/12 years. Even the army is joining the mafia and gradually this is what will lead to Russia’s demise.
* There is no formula for portfolio investment. One needs to invest organically. If one sees an opportunity, invest. Otherwise just hold cash. One need not continuously be doing something.
* Chinese buy companies abroad and then shift the factories to China.
* The situation in the Middle East is getting worse and therefore one is doubtful about Dubai.
* Buy cheap where one sees a change coming.
* Synthetics are made of crude oil. And synthetics are becoming expensive. People will start going back to natural fibers which is cotton. So cotton’s demand will increase but the supply will not be there. And, therefore cotton will be a commodity to invest in.
* In Russia, there are 124 ethnic groups not wanting to be part of Russia. In China, 94% of the population belongs to one ethnic group. China may have setbacks but not like Russia.
* The World had opened up but it is now changing again. There is a closing off. US told China not to buy a company. An Indian is told by France not to buy a company. Many want FDI. The Chinese welcome it. India has some of it. South America is also getting it. But now there’s a closing off.
* Coffee is 75% below its all time high. A coffee tree takes 5 years to mature. Coffee is the business to be in.
* Expert analysis has proven that one can make 300% more by investing in commodities themselves than in stocks i.e. Companies dealing in commodities.
* If infrastructure in terms of roads is going to be big in India then cement will be big in India. Lorry drivers driving across China average 70 km per hour. While lorry drivers driving from Mumbai to Kolkata average around 20 kms. per hour.
* South Korea is a protective economy. Since 1998, it is the best performing index in the world. It is getting too high. Need to be careful.
* Uranium will be big since Nuclear Power Plants will start being developed.
* Art as an asset class grows since as a country develops people of that country want to purchase art of that country.
* Indian companies are protected and therefore have not developed competitiveness. In the world, one will see Chinese and Japanese goods but rarely Indian goods.