If there’s one man who hasn’t been swept off his feet by the prospect of Barack Obama in the White House, it’s Jim Rogers. “Barack Obama has two policies to speak of,” he told attendants at the World Money Show in Westminster. First, he wants to tax capital, just when capital is at its weakest. And second, he wants to protect American jobs. Both ideas are absolutely disastrous, reckons Rogers.
You only have to look at the experience of Japan. The Japanese were determined to protect and prop up their faltering businesses in the nineties, but all it did was leave them with a load of zombie banks. All that happens when you tax capital to prop up failing businesses is that you take money from the competent and give it to the incompetent, says Rogers. This has never worked. “The best hope for America is that everything Obama has said so far has just been rhetoric”.
But Obama gets off lightly compared to Ben Bernanke. Asked what he would do where he in Bernanke’s shoes, he didn’t hesitate for a moment. “Resign. And close the Fed.
“You see, all that Bernanke knows how to do is print money. And he is going to run those printing presses until we run out of trees”. And that means, reckons Rogers, the US economy is facing a serious battle with inflation in years to come. It’s a battle it can’t win, he says. In fact, between Greenspan and Bernanke, we could see the Fed fail. “We’ve had three central banks in America. The first two failed. This one’s going to fail too”.
What should investors do about it? “Bet against the dollar. And bet against long-term US bonds as well”. With a wave of corporate defaults likely this year and America’s debt problem spiralling out of control, any rally in the greenback and the US economy this year will be short-lived, he reckons.
So what about Roger’s beloved commodities? They’ve taken a pounding along with other asset classes. Well, commodities have collapsed because we are in the midst of a global sell-off of everything, says Rogers. But the recession is only going to make the long-term bull case for commodities even stronger.
With miners struggling to get their hands on loans, they are not going to be opening too many new mines over the next year. It’s the same for farmers. And that means, just like in the thirties and the seventies, that commodities will rebound a lot quicker than shares, and this time they will continue to rise for another 10 to 15 years. “Even if commodities fall for a year or two, it’s not the end of the bull market,” he recently told Resource Investor. So what does he recommend?
“Buy gold, cotton and sugar”. Keep an eye on African oil stocks, – particularly in Angola, which will soon surpass Nigeria as the continent’s largest producer of oil. And, he tells Investors Chronicle, he’s keeping an eye on Taiwan. “I’m just sitting and watching because during this period of forced liquidation, some of these emerging markets are going to go down by more than they should simply because they went up by more than they should have.”
Rogers’ arguments are convincing. And in the long run, commodities are likely to rebound as demand continues to outstrip supply – and growth will continue in the East. But we’d also agree that it’s best to watch and wait right now. With Western economies winding down, we’ve already seen a big drop-off in the demand for oil and construction materials.
And China – long one of Rogers’ favourite markets – seems unlikely to bounce back any time soon. Australian miners are already reporting that demand is stagnating in China, and as we reported last week, factories are haemorrhaging workers at an almighty rate. Investors have pulled nearly $10-$20bn of ‘hot money’ out of China every month since July, and the country just doesn’t have enough debt-binging consumers to arrest the fall in demand. Even with the $586bn building extravaganza announced last week, China will struggle to maintain growth of 8-9% over the next two years – the level of growth it needs to stave off massive unemployment. Buy China and commodities will be good advice again one day – just not yet.