Damien Hoffman: Jim, you were in the media a few times last week and I want to follow up on a few points you made. You said on Bloomberg that Nouriel Roubini did not do his homework regarding the asset bubbles about which he is now warning. Can you explain what homework he did not do?

Jim: All of it. How can you talk about a bubble when assets such as silver are 70% below their all-time high? Same for coffee, sugar, cotton, natural gas, and many more. I have a problem talking about a bubble when assets are this depressed from their all-time highs.

A bubble is when assets are screaming to new highs everyday, everyone is talking about them, and everyone owns them. Right now, virtually no one owns commodities. So for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets.

I am flabbergasted at Mr. Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except Gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there.

If an asset rises 100% in one year, that’s a great year, but not necessarily a bubble. Look at oil. It’s up huge off the bottom but nowhere near it’s old highs. Look at Citigroup. The stock is up 3 or so times off the bottom …

Damien: … and I doubt long term shareholders feel like they are in a bubble.

Jim: Exactly. And since Mr. Roubini thought oil would stay below $40 a barrel for all of 2009, I would love for him to tell me and the rest of the world exactly where are all the oil supplies because the International Energy Agency (IEA) — which has the best global data set on energy supplies — has no idea where is the oil. Mr. Roubini should tell us where this price suppressing oil supply is hidden. All the oil possessing countries in the world have declining reserves. All the oil companies have declining reserves. So Mr. Roubini must know something the rest of us don’t.

Damien: On another note, Gold has been reaching new all-time highs, although not inflation adjusted. You said Gold may reach $2,000 an ounce over the next decade. Can you explain what variables will push Gold to $2,000?

Jim: First, I hope you will keep Mr. Roubini’s statement where he said Gold going to $2,000 an ounce by 2019 is “utter nonsense.” I think you’re going to get a chance to call him before 2019 to ask him what he thinks of Gold at $2,000 and why he thought it was “utter nonsense.”

Regarding variables, it’s very clear there is huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money. This has always led to higher prices. Maybe I am wrong and it’s different this time. But I doubt it.

Additionally, no new large gold mines have been opened in decades. Some of those mines are over 100-years old. They are all depleting. On the other hand, central banks have huge Gold reserves above ground — and they are less interested in selling than in the past.

If you adjust Gold for inflation and go back to it’s former all-time high in 1980, Gold should be over $2,000 an ounce right now if you want to say it’s reaching new inflation adjusted all-time highs. That does not mean Gold has to get back to a true all-time high. Nothing has to. However, I suspect that given all the money printing in the world, we will see much higher prices for hard assets.

Despite Gold’s potential, I think I will make more money in other commodities such as silver, cotton, or coffee — all of which are terribly depressed.

Damien: Speaking of other assets, as an outsider living abroad, what is your opinion on US Equities?

Jim: This is one of the few times in my life I have not had shorts anywhere in the world. I have also not had a lot of longs in the stock market because I’ve chosen longs in commodities and currencies. I have kept away from shorts because there is a gigantic amount of money being printed and it has to go somewhere. I thought some of it would end up in the stock market, and it has.

How much higher can the equity markets go? I don’t know. There are a lot of problems in the economy, but I don’t know when those problems will cause a downdraft in the stock market. All we’ve done is paper over the problem, so I expect we’ll have to deal with those issues in the future. Printing and spending money we don’t have simply prolongs the problems and makes them worse in the long run.

If the world economy improves, commodities will lead the way due to demand and shortages. If the world economy does not get better, commodities are still a great place to be because governments are printing so much money. And, if the world economy doesn’t get better, they will print even more money!

Damien: Jim, thank you for taking the time to share your outlook and opinions. I greatly appreciate it.

Jim: You are very welcome. Your site is very impressive. I look forward to staying in touch.

* The $USD is a terribly flawed currency
* There are so many pessimist, their is the possibility of a rally
* If the $USD is replaced as a reserve currency, most likely it will be the Euro
* The Chinese are going to be forced more and more to open up their currency
* Commodities are not in a bubble, yet
* We have a catastrophe coming in oil and is surprised oil is not higher
* Wouldn’t buy Gold right now,but would if it goes down
* Gold will double in the next several years
* You might make more money in Silver than Gold.
* The idea that you can solve a crisis of debt and consumption with more debt and consumption is absurd
* You can solve the problem by letting people go bankrupt, and restart from point zero.

I don’t know whether Bloomberg is trying to start a Nouriel Roubini vs. Jim Rogers war, but I didn’t like the way Bloomberg’s host started this interview. Three questions on Roubini to kick things off. One thing that did become obvious to me is how wrong Mr. Roubini is if he in fact believes Emerging Markets are in a bubble due to the fact Emerging Markets they have risen a bit. I don’t know much about Roubini, but one thing I have noticed since he became “famous” he might be stepping out of his circle of competence. By that I mean he is an Economist trying to become a market commentator. Not working buddy.

Bubble Definition According to Dictionary.com

an inflated speculation, esp. if fraudulent:

A quick reminder to Mr. Roubini, the growth in some of these Emerging Markets are real. China is growing, Brazil is growing,etc.. They were more of a bubble back before the crash.

“China has been investing in commodities. So have other economies… The Chinese economy is a successful economy… I wish China would be rich enough to control all the markets like that.”

“Anything a country can do to the capital market and raise capital for entrepreneurs are good for the country and entrepreneurs. China is doing a very wise thing. There will be some problems there. But there will also be some great success…”

No surprise to those who have been following Jim Rogers for the past year or so. Jim Rogers continues to be bullish on Sugar despite making multi-year highs but not all time highs. Jim Rogers has also stated recently that for the first time in a long time he has no shorts, this could be changing shortly.

IndexUniverse.com (IU.com): How do you think the specter of increased regulation will affect futures-based index commodities ETFs?

Jim Rogers (Rogers): First of all, there’s no question: It’s not just a specter—they seem to have it in their heads that they’ve got to do something. It’s interesting because index investing doesn’t really have much effect on the price. Index investors don’t take delivery of commodities—they turn around and sell them again. Index investors in stocks, now they do have influence on the market, because they take stocks off the market. Anybody who invests in the S&P 500 funds, they buy stocks and take them off the market. If anybody manipulates the market, it’s the stock index investors. Having said that [the regulators] look like they’re going to do something.

It is having a temporary effect on the market, but eventually it’s going to drive the markets offshore. America has had a near-monopoly on commodity trading for 100 years, and they’re just giving it to the rest of the world. I live in Asia, and I travel a lot. [They] can’t believe what they’re seeing because America’s about to say, “Here. Take the business.”

Many countries have made mistakes like this. If it happens, there’s going to be a temporary blip in the market. It will make the fundamentals of commodities better because as long as prices are down, there’s less incentive for people to produce more. But eventually you’re going to see [business move to other] markets, whether it’s in Japan, Singapore or India. They’re all sitting there dumbfounded that this is happening.

If you’ll notice, the English have said “well, we’re not going to do this.” Because they love the fact that all of a sudden they may get a lot of business that will be forced out of the U.S. and into other markets. It’s staggering.

But then I’ve often been staggered by politicians throughout my life, and if you read back in history, you sometimes say to yourself, “How can anyone be so dumb?”

IU.com: Has the persistent contango in certain commodities counteracted the argument for index-based commodities investment?

Rogers: I do notice the press has suddenly learned how to spell “contango,” and even “commodities.”

I’ve seen it come and go. Certainly when you deal in a commodity that is in contango, it makes it more difficult. However, if a commodity is in contango and the basic price is going through the roof, you’re still going to make a lot of money. But I’ve seen contango come and go. From my point of view, as a passive investor, I really don’t pay attention because there’s usually something in backwardation and something else in contango, and they come and go over time. According to studies, they haven’t had that much difference.

But if you’re really smart and you can invest away from contango or can invest with contango and know how to do it, you’ll make a lot more money. And there are people who think they are really smart and are trying to do that right now. I’m not smart enough to do it, so I just continue to invest in an indexed way with all commodities

“I have various views on Korea, but do not invest there since Korea makes it extremely complicated for foreigners to invest there,” Rogers said. “I know Korea says loudly and widely that it welcomes foreign investors but Korea’s actions tell a different story. They have driven me away and presumably others as well.”

Rogers doesn’t have anything personal against Korea, he was simply turned off with the stringent regulations. Jim Rogers continues to like its prospects in the coming years.

“It’s a wonderful country, I love it there,” he said.

“It will give Japan a gigantic run for their money. Maybe that’s why Japan is against the merger.”

Source: The Korea Herald

Rogers is fairly famous among the investing crowd for being a superbull on commodities. His investment convictions spring from an unflappable confidence in his ability to spot emerging secular trends. He looks at the same headlines we all do — that the U.S. government is running gargantuan deficits, that China’s huge account surpluses are being smartly invested, that the world economy is experiencing tectonic shifts. But Rogers sees each bit of news as a piece of a bigger puzzle. When he finally can divine what the puzzle says, he bets heavily, writes books about it and gathers a crowd around him. No one knows how heavily he bets, because Rogers is a private investor, but it’s safe to assume that it’s more than you or I have in our brokerage accounts.

Consider what he did the last time he saw one of these trends coming: in the early ’90s, he traveled the world on his motorcycle, then wrote a book, Investment Biker, that helped popularize emerging markets at the beginning of their long bull run. (See pictures of the top 10 scared stock traders.)

Rogers sees three big secular trends now, and he’s acting on all of them. First, America’s role as the dominant economic power is declining, so why own American stocks? (He doesn’t.) Second, China is emerging, and even though it may have crises from time to time, it is a good place to invest. (He does.) Third — and this is the biggie — emerging nations including China are greatly increasing the future demand for commodities such as oil. (He’s in with both feet.)

“Thirty years ago, 3 billion people were not even participating in the world economy, and now they are trying to live like we do,” he notes. That emerging megaforce, says Rogers, will put a supertight squeeze on commodity prices across the board, from beef to bullion. For the unconvinced, he pulls out a chart showing the average daily per capita consumption of oil in the U.S. at 0.677 bbl., vs. India’s infinitely smaller consumption (0.021 bbl.) and China’s (0.049 bbl.). “Even if the Chinese and Indians just start consuming as much electricity as Koreans now do, the price of oil will take off,” he says. (See the best business deals of 2008.)

Rogers isn’t just an investor; he’s an impassioned salesman, part Jimmy Swaggart, part Howard Ruff. There are several commodity exchange-traded funds (ETFs) now trading under the Rogers name, and his very appearance last Thursday, Oct. 8, was to help hawk two new precious-metals ETFs — one for gold and one for silver — being offered by ETF Securities USA, which hired Rogers to speak.

Maybe it’s the bow tie, his Alabama drawl or his professorial demeanor, but when Jim Rogers speaks, even those who disagree quietly rethink their positions. People who challenge him are playfully mocked. Responding to one young business type in the crowd who questioned his thesis, Rogers advised him to “head down to Texas A&M and offer to trade in your M.B.A. for one of their agricultural degrees.” Become a farmer, he advised the guy: “You’ll make out better than you will with your M.B.A.” The man tried to respond but was drowned out by laughter.

Own government bonds? Don’t tell Jim. “How could anybody in their right mind lend money to the U.S. government at 4% for 30 years?” He draws out the enunciation of “30 years” as if he can’t even believe he’s saying it, can’t believe that anyone could be that stupid.

Rogers believes some eternal truths: that even God-fearing politicians lie about their intentions, and that governments will steal from you. “Think it won’t happen here?” he asks. “Just look what they did to GM bondholders.”

He also fervently believes in investment cycles as a natural outcome of human behavior. The commodities boom is one such cycle, he says, and it won’t last forever. “These commodity bull markets tend to last 18 to 20 years. The current one started 11 years ago,” he says. No one knows when a cycle will end, Rogers says, but it’s clear from his ebullient tone that he believes the best part of the ride is still ahead. That especially holds true for certain commodities that have not yet had their big run. “I like gold [partly as an inflation hedge], but I’m even more interested in silver, which is still 70% below its all-time high.”

Silver. Hmmm. Hardly has that thought sunk in before I’m back to watching Jim prance across the stage, dipping into geopolitics — “whenever in history an established power is being surpassed by a rising power, they clash,” he said, referring to a potential U.S.-China faceoff — and giving the audience a peek at what may be his only anxiety, water. Or rather, China’s inadequate supply of it. “If they run out of water, all bets are off — it’s the one thing you can’t do without,” he says. Boy, this guy is smart.

But if he’s so good at investing, why is he out shilling for someone else’s funds?