From the late 1990s until the 2008 financial crisis, most commodities experienced double-digit price growth annually, a period known as the commodity “supercycle.” But today, commodities as an asset class are a far cry from those glory days. The fall in the price of crude oil triggered by OPEC’s increasing supplies and the metal meltdown caused by the Chinese slowdown have cast a shadow of doubt and pessimism on the space. In this interview, Jim Rogers, chairman of Rogers Holdings and author of “Street Smarts: Adventures on the Road and in the Markets” outlines the course ahead for commodities.
What is your view on commodities? Can the current rally sustain?
Industrial metals are behaving in a complicated fashion when it comes to marking a bottom. Oil had a big drop and is now using the dead-cat bounce to rally. Energy will go back to test the lows later this year, then it would have made its bottom. That is also the case with industrial metals. They would be testing their lows a little later. When it comes to gold and silver, I am not buying yet. I expect a better opportunity later this year or the next. I am optimistic about agriculture though. Agriculture is marking its bottom, if it hasn’t already. Things like sugar and rice are very low and attractive. As the world is engulfed by a crisis again and governments print and spend more money, I suspect a lot of it would go into real assets such as commodities.
But the demand remains weak?
Commodity prices are dependent on both supply and demand. You need demand, but you also have to worry about the supply. For instance, oil supply would be going down soon because many companies are cutting production. If production goes down faster than demand, prices can still go up. In fact, prices can rise even when there is a recession.
The supply of most commodities will be going down in the next couple of years. Within the oil industry, reserves all over the world have been declining except for shale, but now, even that is facing problems. The supplies are going down. That’s why oil will mark its bottom in the next year or two as supplies will be going down, no matter the demand scenario.
Can a strengthening dollar put commodities under more pressure?
It happens often, but not always. When the dollar goes up, the commodities go down and vice versa. The dollar is having a correction now, which means some commodities are rallying. But, you can have both too. You can have the dollar going up and the commodities going up as well.
Where do you see the dollar going from here?
The financial markets are going to have problems later this year and the next. When that happens, people will flee to a safe-haven. They think the dollar is one because historically it has been so. That would make the dollar overpriced. May be, even make it a bubble someday. It certainly is not overpriced now and there is no bubble yet. But, when the turmoil comes, people are not going to buy the yuan or the euro, they will be looking for something and they will go to the dollar at least temporarily.
Speaking of yuan, what is your take on China, its future prospects and the currency devaluation?
The Chinese currency has been the strongest in the world over the last 11 years. It is still the strongest. I didn’t know that there has been a devaluation of the Chinese currency. They decided to let it float more and tied it to a basket of currencies. It went down 4%-5%, but that is hardly a devaluation. It is more like a normal market correction.
Yes, the global scenario is affecting the Chinese economy. Japan, one of China’s largest trading partners, is in recession. Korea and European countries are in recession. Parts of the US are in recession. All of this is affecting the Chinese economy. But China, itself, is not the cause of the problem.
While China is important, we need to worry more about rest of the world. Japan, Europe and America are 400% bigger than the Chinese economy. You can watch China, but you should also watch rest of the developed world. That is more important. Unfortunately, the whole world is having economic problems, which will continue over the next couple of years.
But can China return to a high economic growth trajectory?
There are always transitions in any economy. I doubt if moving towards a consumption-led economy will help China grow faster in the future. It will continue to grow, but the Chinese economy has not had a recession in 26 years, which is quite unusual. It is overdue for some economic problems. They have a lot of debt. So, probably we will see some more problems in China in the next recession than before. That would surprise a lot of people, including people in the country itself. But, I would rather be in China that most countries.
Between China and India, which is your preferred investment destination and why?
I’d rather buy China than India. If you want to travel, you should go to India. If you want to invest, you should go to China. Prime Minister Narendra Modi has certainly done a great PR job around the world, made a lot of trips and got a lot of fans for himself. For India though, he has made only a few small changes. I don’t see anything major. And if Modi can’t do it, with his huge majority, who is going to ever going to reform India and open it up?
Yes, he has done some things, but for most part, he hasn’t done enough. Making India an infrastructure-led economy makes sense because the country has abysmal infrastructure. If Modi can build infrastructure, it would be good, but the problem is that India now has a huge amount of debt. He certainly needs to cut consumption and increase investment, but he needs to figure out a way to do that without increasing the existing debt.
Lastly, can we see more hikes by US Federal Reserve this year?
I am sure the US Fed will hike interest rates at least once more this year. It may even happen twice.