“I suspect in the next year or two we will see some kind of major, major problems in the world financial markets.
I would suspect when we have this correction, it’s going to cause central banks to panic… they will print and spend and borrow, but there comes a time when people are just going to say ‘We don’t want to play this game anymore’. And at that point, the world has serious, serious problems because there’s nothing to rescue us.
I suspect the next economic/financial collapse will be the one they can’t deal with.“
Submitted by Adam Taggart, Peak Prosperity,
Two years since his last interview with us, investor Jim Rogers returns and notes that the risks he warned of last time have only gotten worse. In this week’s podcast, Jim shares his rational for predicting:
- increased wealth confiscation by the central planners
- a pending major financial market collapse
- gold’s return as the preferred safe haven investment
- more oil price weakness, followed by a trend reversal
- Russia’s rebound
- a China bubble reckoning
- agriculture’s long-term value
I suspect in the next year or two we will see some kind of major, major problems in the world financial markets.
I would suspect when we have this correction, it’s going to cause central banks to panic. There’s going to come a time when there is not much the central banks can do when they have lost all credibility. When governments have lost all credibility. They will print and spend and borrow, but there comes a time when people are just going to say We don’t want to play this game anymore. And at that point, the world has serious, serious problems because there’s nothing to rescue us.
I suspect the next economic/financial collapse will be the one they can’t deal with. But, if somehow they are miracle workers, be very, very careful. I would be worried about 2022 – 2023 then. The game will definitely be up if it’s not up this time around.
My US Dollar holding is my largest position. Not because I have any confidence in the US Dollar; it’s a terribly, terribly flawed currency. We are the largest debtor nation in the world’s history. And the debt is going higher and higher and higher. But there is going to be more turmoil coming. And during periods of turmoil people flee to a safe haven. The US Dollar is not a safe haven, but many people think it is, and they don’t know what else to do. So they will go to the US Dollar. They are not going to go to the yen. They are not going to go to the Euro.
We may even see the US dollar, for a variety of reasons, turn into a bubble. That of course is not good for gold. Gold may drop a lot, at which point I would have to sell my US Dollars and hopefully be smart enough to buy gold.
Click the play button below to listen to Chris’ interview with Jim Rogers (26m:16s)
Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. You know, it was three years ago and then it was last year we ended up talking with legendary investor Jim Rogers, and it turns out everything that he told us about back then made sense and it came true. When we were talking with him last time I was a little bit credulous, but he said that he was bullish on Japanese equities precisely because they were debasing their currency. That turned out to be the correct view, of course. So now we are going to get to talk with him again. Jim, welcome to the show.
Jim Rogers: I’m delighted to be here, Chris. Good evening. Good morning.
Chris Martenson: Good evening. Good morning. You are in Singapore. I’m over here in the United States. About a half a world apart.
Jim Rogers: Morning here and evening there. Go ahead.
Chris Martenson: Here is what I wanted to get your views on – the Federal Reserve is at the end of its QE program. It looks like the US markets are topping out. There is a lot of uncertainty in the markets. But let’s start with Japan. You were right to call a bullish call on Japanese equities then; where do you stand now?
Jim Rogers: Well, I’m still long Japan. I would like to buy more if I find the right opportunity and the right thing. I suspect – well, conceivably Japan is going to turn into a bubble again even though it has been 25 years since they had a bubble in Japan. Maybe they are overdue. Mr. Abe, the prime minister and the head of the central bank seem determined to do whatever it takes to drive things higher. They said they will print, their words, “unlimited amounts of money” so I am afraid it could turn into a bubble. In any case, I am still buying.
Chris Martenson: Well now Japan is an interesting case obviously. They are losing population at this point. What remains is rapidly aging. Does it make sense to try to pump things up given the demographics?
Jim Rogers: Well, Chris, Japan is going to be a disaster. Mr. Abe is going to go down in history as the person who ruined Japan. Twenty years from now people are going to look back and say “oh gosh well that was it. That was the end.” The end for everything you just got through saying. Their population is declining. Their debt is going through the roof. Their currency is being destroyed. None of these things are good to build an economy or to build a long-term future. But it is good for stockbrokers and good for investors because it does make stocks go up whether we like it or not. History will say Mr. Abe ruined Japan, but in the meantime he is getting stocks higher and higher.
Chris Martenson: Now how do you feel about United States equities given that same dynamic? Do you think the Federal Reserve is committed to do whatever it takes?
Jim Rogers: What I suspect will happen with the US is the US will have some kind of correction somewhere along the line for whatever reason and then everybody will call up after, I don’t know, the market comes down 9% or 13%, you make up the number. Everybody will call up Washington and say “oh my gosh, you’ve got to save us. Civilization is at risk. You are going to ruin your reputation and our lives and our world.” Those people in Washington are bureaucrats and politicians; they’re not terribly smart. So they will panic. They will give up and they will come to the rescue. I don’t know what they will do. They will do something to calm everybody down. Then I suspect the market will turn around and have another big rally. It may go on to new highs. It may even turn into a bubble depending on how panicked the people in Washington get. Then that will be the end. The market will make its final top. That could take weeks or months, but then the market will make its final top and that will be the end. And we will start to have serious stock market problems worldwide.
Chris Martenson: And when you say – what is your timeframe for those serious stock market problems worldwide? Is this something that will take a year or two to resolve or is this something that might last the rest of my life? What are you talking about here?
Jim Rogers: Well the rest of your life, that would be wonderful. You are a young man. That would be terrific. Even the rest of my life would be terrific. No, no. I suspect in the next year or two we will see some kind of major, major problems – longer term problems in the world financial markets. I would suspect when we have this correction it is going to cause central banks to panic. That would happen in the next few weeks or month, and then we have the galloping to the rescue to save us all. That turns into a rally, a big rally that could last a few weeks or months. By 2016 I am sure we are all going to be moaning and groaning because there is going to come a time when there is not much the central banks can do when they have lost all credibility. When governments have lost all credibility. They will print and spend and borrow, but there comes a time when people are just going to say “we don’t want to play this game anymore.” And at that point, that is when the world has a serious, serious problem because there is nothing to rescue us.
Chris Martenson: Do you ever speculate about what those next things might be? I have heard lots of speculation. Potentially a debt jubilee. Maybe a tax rebate. Giving money to Main Street instead of Wall Street. If you could wargame that out and knew what they were going to do, would that change your investment strategies?
Jim Rogers: Well of course if I knew what they were going to do I would invest accordingly. One of the things they will probably do if it comes to it is they will take money away from bank deposits. They have already passed the regulations which said we can take money away from depositors now. They couldn’t do that before last time around. They did it in Cypress and did it in a few places, but in America it was not legal in the UK but it is now legal that they can take your money out of your bank account if they want to. If they decide to. Who knows what they will do. They may buy stocks. Some countries the central banks have been buying stocks. They could do all sorts of things. Mr. Bernanke once said that he would have the power to do anything he wanted. He could buy gold mines if he wanted to. He can do whatever he wanted. Who knows what they will do. They’ll get more and more desperate, but the more desperate that they get the more the world—other than rallies—the world is going to realize oh my gosh the game is up.
By the way, Chris, we may conceivably survive one more big financial problem. Big problem. Serious problem. Collapse if you will. If we do, if they come up with something to save us the next time around, the time after that, boy, there is nothing they can do then. I suspect the next economic collapse, financial collapse, will be the one they cannot deal with. If somehow they are miracle workers, be very, very careful. I would be worried about 2022 – 2023 because then the game will definitely be up if it is not up this time around.
Chris Martenson: Why do you hold that view? Is it because of all the debt outstanding or do you have resources in that view as well? What is really underpinning that view that we have got one, maybe two cycles left, but then we are in trouble?
Jim Rogers: As you know, we had a problem in 2008, which was the worst we have had in a long time. Much worse than the earlier financial crisis and that was because the debt was so, so much higher. Well, Chris, look out the window. The debt is everywhere now. It is staggering. There is no country in the world that has lower debt today than it had in 2008. The Federal Reserve’s balance sheet alone has quintupled, more than quintupled just in those few years. No. Things are getting much, much worse. All the countries that talk about austerity – they all have higher debt now than they did last year. They will all have higher debt next year than they had last year or this year. This is all a shell game. It’s a sham. The debt keeps going higher and higher and higher.
Chris Martenson: You mentioned the bank deposits now being seizable in the chain of dissolution and bail-ins and all of that. I have been a little surprised that gold hasn’t been slightly more popular, given that. I think people have turned to long-dated government bonds as a means of hopefully protecting their wealth. How do you see gold playing out in this particular story?
Jim Rogers: Well, I own gold. I own some gold and I never sold any gold. I’ve had gold for many years. But I have not bought gold in quite some time. Gold has been an anomaly. Gold went up 12 years in a row, as you well know, without a down year. Now that is very strange. That does not happen in markets. So the correction of gold is now going through and also is an anomaly if you ask me because we have to correct that huge move up of 12 years in a row. I don’t know how long it is going to last. I am not buying gold at this stage. I even hedged some of my gold. Not much, but some because I expect another chance to buy gold sometime in the next year or two if it happens. If it happens I hope I am smart enough to step in and buy a lot of gold.
Chris Martenson: And what are you seeing over there in Singapore around gold buying? I know I’ve read lots of stories—haven’t been there myself—about China and the Shanghai Gold Exchange over there in Asia. Obviously a love affair going on with gold. I have been surprised seeing how much gold has been going from west to east, that the price has been doing what it has been doing, but those are the markets. Have you noticed any increased attention to gold in Singapore or about the same?
Jim Rogers: There is more interest in gold. In China it was almost impossible to buy gold 15 years ago, even 10 years ago. Now there are gold shops everywhere in China. It is easy to buy and they have been buying. That is pretty much true of other places in Asia as well. When gold first collapsed there was a big move, a lot of people rushed to buy, but that has cooled off. I was just in China, in fact I saw a gold shop so I stopped to go in and see what was happening. There was not a soul in the shop except five staff members. They were very excited to see anybody. I even bought a few coins just to keep them happy. I bought three silver coins, I think, and one gold. It seemed to be the highlight of their day. It has certainly calmed down in Asia, the gold buying.
As I said, I suspect there is going to be another chance for all of us to buy gold. I don’t know why, Chris, gold has not had a 50% correction in many, many years. That is unusual because most things have 50% corrections every three or four or five years. It’s just the way the markets work. But gold has not. So back to my point: The anomaly is how gold has been acting for the last several years. There are still too many holy people who think that gold is mystical, that gold can never go down. We have got to wait for some of them to give up. We’ve got to wait for some of them to just throw gold out the window and say “she was dishonest. She lied to me. I’ll never touch gold again in my life.” Then we can have a bottom, and then maybe it will be time to buy a lot.
Chris Martenson: Let’s turn to one of my other favorite commodities that was dishonest and lied, which was oil. Coming down from a high of in the 110 zone and getting halved on the world market, what are you making of the oil markets here?
Jim Rogers: Well, you are right it was dishonest. What happened as you know, America was negotiating with Iran last summer and then the deadline came of July 31st and they both agreed to extend the deadline for a year. You can look at the charts and you will see that is when oil started going down because told America Saudi Arabia to dump oil to get the Iranians under control and the Russians. Saudi Arabia was very happy to do that because they need to do something about fracking. They cannot stop fracking, but they can bring a rationale, a sense to the fracking market. So they started dumping. You see the charts as well as I do. It looks to me that oil will probably be making a bottom sometime this year no matter what Saudi Arabia does at this point. I would not sell oil. As you know, Chris, the way markets work – usually – when something has a big collapse there is a dead-cat bounce, there’s a big bounce for whatever reason, and then a few weeks or months later the market tests the lows. I suspect there will be a test of the lows sometime in the next few weeks or months but that the lows will hold and then oil will go its mery way again.
The fundamentals of oil are such that the world has continued to use more oil than it has discovered. I mean yes, we are not discovering as much as we are using anywhere in the world except for fracking. And therefore world reserves, except for fracking, continue to decline. So the world oil problem is not pretty if you go out a year or two or a few years.
Chris Martenson: Yea, that was something that caught my attention even February of 2014, a full year and three months ago, when all the international oil majors were cutting their capital expenditures because they couldn’t both profitably search for oil and pay dividends. So they cut CAPEX in that story. That was with oil at 110. My concern is a couple two, three years out I think that shortage of CAPEX will translate into shortage of production. And oil is right now below its marginal cost of production. That seems like a pretty good place to think about getting in for any commodity, doesn’t it?
Jim Rogers: Well, normally, but I have been around a long time and I have seen plenty of commodities stay below the cost of production for longer than anybody would think is sensible or rational. Everything you said is correct and it will cause problems eventually whether the problems are this year or whatever. I do know it will be this decade, if not this year, because everybody has cut back and that is it. Even before the cutback the world was using more oil than it was finding every year and so world reserves continue to go into decline, except for fracking.
And fracking, of course, we now know the wells are very short-lived wells; these wells will dry up pretty quickly, so fracking is not as wonderful as we thought. Most of the frackers had negative cash flow. They only survived by rushing around drilling, drilling, drilling more wells, which is why production is still going up. That is going to change very soon.
Chris Martenson: I agree. I agree. The negative cash flows—it was like they were making it down on volume. It was a strange, strange situation.
So Jim, as we turn our attention to Europe, obviously—I am almost tired of analyzing what Greece may or may not do. It is a rumor a day. But do you have a point of view on where Greece is headed and how this might turn out?
Jim Rogers: Well, first I’ll tell you what should happen, what would be best for Greece and the world. What would be best would be if Greece went ahead and went bankrupt and defaulted on its loans, because they can never pay them off no matter how much phony bookkeeping or sleight of hand you want to use. So it is impossible. They should just go ahead and go bankrupt. I would not leave the Euro if I were Greece. That would make it even worse for Greece. They should go bankrupt, stay in the Euro, and default on their loans. They may get thrown out if they default on their loans. But Chris, you know many American states have gone bankrupt in our history. They didn’t get thrown out of the US. Many counties, many cities; it’s not the end of the world. You don’t have to leave just because you go bankrupt. That would be the best solution. Will that happen? Probably not. I’m sure something is going to come along to make everybody say things are okay.
One situation is Greece—the center of the Orthodox Church is in Greece. The Russians are also Orthodox. Who knows? Putin is doing all sorts of things with the church these days. Putin is going to ride to the rescue of the Greeks. It will make him look good. It will poke the Americans and the Europeans in the eye. Who knows what may come out. I suspect something will come up which will make everybody say things are okay even though they’re not.
Chris Martenson: If Greece does default, as far as I understand nearly all the debt has been sequestered in the ECB so it is just an explosion on a central bank balance sheet, which is not really a market moving event is it?
Jim Rogers: Yes. It will move to market, I assure you. At least for an hour, if not for a week. It will have some effect because many people will panic. Somebody is going to lose no matter what happens. Greece is a very, very small economy in the world context. Very small in Europe. Very small even in the Euro context. Tiny. But it will make headlines and it will cause some dislocations in the market for a while.
Chris Martenson: Now, you brought up Russia and I have been intrigued by watching Russia going under sanctions and things going quiet a little bit. Do you have a sense—is Russia going to be brought back into the fold or do you think this coldness is going to persist for a while?
Jim Rogers: I’m buying Russia. I’m bullish on Russia at this point. Will it be brought back into the fold? Not at the moment. There are some bureaucrats in Washington. They caught the lady on the telephone plotting for the illegal coup in Russia or in the Ukraine. So she and her friends obviously have an axe to grind to make sure that Russia is still a bad guy. I don’t think you are going to see anything solved any time soon with the US and the West.
It is bad for the US; it is bad for the West. Many Western companies, European companies, are already suffering because of the sanctions. Certainly suffering as much as the Russians if not more. Worse still, Chris, is we are now driving the Russians and the Asians together and the Iranians and everybody else. Yes, it is a temporary blow to Russia but unfortunately in the long term it is going to make Russia stronger because they are going to be even tighter with the Chinese, the Iranians and any other Asian countries. That cannot be good for the US.
Chris Martenson: I agree. It was an amazing pivot that Russia did after being annexed and pushed away by the US trying to isolate it, seeing the gas deals that Russia struck with China—extraordinary. $400 billion, 38 billion cubic meters, just an astonishing set of figures on that. Then they struck a second deal. And now we have China looking to lay claim to what they hope are hydrocarbon resources in the South China Sea with the Spratley Island deal. United States there poking at China on this. China is seeming to be pretty firm about this. Do you think China is going to stick to its guns and lay claim to those islands or is there room for negotiation here?
Jim Rogers: Well lay claim—Chris if you go back and look at an old map—Rand McNally is the quintessential American company. Rand McNally maps from like 1947 show the Spratley Islands as part of China. We’re doing a little revision of history here all of a sudden in the US. Get out some old maps. Old American maps. Not old Chinese maps. Old American maps and you will see that the Spratleys were always considered part of China. Why America is doing all of this? I have no clue other than maybe we think that we should control the world and everybody should jump up. We have a lot of bureaucrats in Washington who need something to do, need to make themselves important.
I know China is not going to give in. They have been around a few thousand years. They are firmly convinced—partly because of American maps—that the Spratleys are theirs. I would hate to see us all go to war and do something foolish over a few rocks in the middle of the ocean, whether it’s with the Koreans and the Japanese or the Chinese. They are all fighting over some rocks in the water. It is a shame somebody can’t sit down and sort of divide it up and say, God, there’s no sense spending billions of dollars on tanks and planes and killing thousands of millions of people. Let’s sort this out. You may remember that 500 years ago, when there was a big dispute in the western hemisphere about whether the Spanish or the Portuguese should own it. They were about to go to war. They went to the Pope and the Pope divided it up. I wish we could find somebody who is as well thought of as the Pope in 2016 or 17 who could sort this out. I know the Chinese are not going to give up. I know the Americans keep trying to throw their weight around. And I don’t know what business it is of the US, but someone in Washington thinks it is.
Chris Martenson: I totally agree with you on that. Jim, as a final question here then – I have a lot of people (myself included) pretty confused on how to invest in this environment. Frankly, from my point of view, it seems more like a speculator’s environment rather than an investor’s environment. People throwing TA out the window wondering when fundamentals will matter again. How do you go about investing in an environment like this?
Jim Rogers: Well fortunately or unfortunately this seems to be a market where momentum is what everybody is playing. I have seen a little bit of it in the past. Not as extensive as it is now, but you are right. About the only thing that seems to matter now is momentum for people.
But you are starting to see that go the other way. Germany has already rolled over. America is not doing very well. I don’t know how people should – what I am doing is I continue to buy China. China looks like an incipient bubble, which would be a shame because if it turns into a bubble I will have to sell my Chinese shares.
I continue to invest in Russia, although not at the moment because oil is, I suspect, going to be testing its bottom. Japan I am still involved in. What else am I doing? I own US Dollars. My US Dollar is my largest position. Not because I have any confidence in the US Dollar. It is a terribly, terribly flawed currency. We are the largest debtor nation in the world’s history. And the debt is going higher and higher and higher. But there is going to be more turmoil coming, Chris. And during periods of turmoil people flee to a safe haven. The US Dollar is not a safe haven, but many people think it is and they don’t know what else to do. So they will go to the US Dollar. They are not going to the Yen. They are not going to the Euro. We may even turn into a bubble in the US. I can conceivably see – and this is the scenario that might work out: The US Dollar, for a variety of reasons, turns into a bubble. That of course is not good for gold. Gold drops a lot, at which point I would have to sell my US Dollars and hopefully be smart enough to buy gold. If it works that way.
In the meantime, the Chinese market could be turning into a bubble. It looks like it might; I would have to sell my Chinese shares. I don’t know what I would do with the money at that point. If that happens, the Japanese market will be a lot higher. I don’t want to buy it that much higher. I have to sell it somewhere along the line.
We are always coming into interesting times. You say it is very difficult at this point; Chris, it has never been easy for me. All my friends are always talking about “oh gosh it used to be so easier.” I don’t remember it ever being easy. Maybe their memory makes it easy, but it has always been hard for me making a living in the investment markets. But that is where I am putting my money.
Agriculture, of course—I am optimistic about agriculture. Agriculture has done a knee jerk in the past a little while, but I still love agriculture even though she has been mean to me.
Chris Martenson: I do too for a bunch of long-dated reasons and looking where the world is going and were population is headed and where resources are going and how the weather is getting a little wonky, which is going to make things interesting I suspect going forward.
It is always interesting. You are absolutely right. I don’t think it has ever been easy to put money in, pull it out. What you have just described for me is sort of like bubble dodging and I am intrigued. If the dollar is the final safe haven, but it turns into a roach motel and you’ve got to run out of that where – what is on your list then? You said gold potentially, but where do you go if the US bubble bursts?
Jim Rogers: Well if the US Dollar bubble bursts and the US bubble bursts – that is what I don’t know. By then conceivably the Chinese currency will be convertible. But conceivably the market in China would have turned into a bubble and it would burst. If the currency becomes convertible—it looks like it may well in that period of time—I may have to sell my US Dollars, buy gold, buy the Renminbi. I don’t know. Paper money everywhere in the world is suspect now. There is not a sound paper money anymore because politicians everywhere have learned to buy votes. Even dictators have learned to buy votes with their currency. It is not easy now, but for me Chris it has never been easy.
Chris Martenson: Well, with that I want to thank you so much for your time. We have been talking with Jim Rogers, legendary investor, telling us that you’ve got to be nimble and watch the whole world and be ready to move around the world with your money and maybe even your feet, as some people have done. Jim, thank you so much for your time. I do appreciate it.
Jim Rogers: Well, Chris I also suggest they listen to you. Maybe that is how they will figure out how to survive the coming crisis.
Chris Martenson: And thrive. Thank you so much, Jim.
Jim Rogers: Thank you. Bye-bye.