Jim Rogers Talks China, Gold, Commodities

NEW YORK ( TheStreet) -- Global investor Jim Rogers is betting on China and commodities to make him money.

Rogers moved to Asia in 2007 saying that all smart investors should do the same and that it was similar to moving to New York City in 1907. Rogers is invested in Chinese stocks, the euro, the dollar and the renminbi. He is long commodities and short U.S. bonds.

Now, not all investors are so bullish on the emerging-market country. Jim Chanos, founder and president of Kynikos Associates, has been shorting China, saying the nation's economy is on a treadmill to hell.

Cries that China is in a bubble have reached a fever pitch this year, and the country's rising inflation seems to support these worries. China reported that its core consumer price index for November soared 5.1% year over year compared with 4.4% in October. The country raised the amount of money banks must hold in their reserves six times in 2010 in order to curb rising inflation.

Many investors are concerned that China, credited with jump-starting the global economic recovery, will be forced to raise key interest rates -- something that could crimp growth as well as consumers' purchasing power.

Chinese officials themselves have promised a more "prudent" growth strategy, but the government has yet to take truly aggressive steps. China seems to be avoiding raising interest rates in order to keep the value of its local currency low.

Global currencies have come into the spotlight this year as struggling economies like the European Union and the U.S. have issued massive stimulus programs to jump-start growth. The U.S. is the latest offender with its $600 billion bond-buying program, which many have called an attempt to artificially lower the value of the dollar.

The U.S. currency has been on shaky ground. PowerShares DB US Dollar Index Bullish ( UUP) is up 1.3% for the year while PowerShares DB US Dollar Index Bearish ( UDN) has lost 4.3%.

Meanwhile, the European sovereign debt crisis and contagion fears have reverberated around the globe. The euro plunged to levels not seen since the Lehman Brothers crisis and had many investors calling for parity with the dollar. The CurrencyShares Euro Trust ( FXE) fund has fallen 8.8% year to date.

The currency problems have been very positive for gold, which has rallied 23% this year, and has become a much-talked about investment. Other commodity prices have jumped on demand from emerging-market countries. Some analysts say oil will hit $100 a barrel next year.

I recently sat down with Jim Rogers to see how he is investing headed into the end of the year.

Jim Rogers: My Favorite Commodities

I want to get your take on what the fate of the euro will be in the next year.

Rogers: Next year? I'm not smart enough to know that; you should watch TheStreet.com ... I'm not very good at short-term trading or market timing. I own the euro; whether I own it another day or another year or another five years, I don't know. I don't think it will be around in 10 years, so I doubt if I'll own it then, but I have to watch to see what happens.

So if you don't think it's going to be there in 10 years, why are you owning it now?

Because last summer everybody got extremely pessimistic, and everybody was dumping the euro as fast as they could, and in my experience when everybody's on one side of the boat you should go to the other side of the boat, and so I stepped in and bought it and it went up.

What about the dollar?

Same thing. I own the U.S. dollar because everybody in the world is pessimistic on the dollar including me ... It doesn't always work, but most of the time when you go against the crowd you will make money.

Now the dollar has had a nice rally in the past three months. Have you been thinking about selling at all?

I think about it every day, I think about selling the euro every day, of course I do, who knows, but so far I still own them.

Do you know what it is going to take for you to sell the euro and the dollar?

Well, lots of exuberance, the same thing. If everybody gets widely enthusiastic and thinks the euro's OK now or the dollar's OK now, then I would probably be forced to sell. Things are happening with the dollar that could make it more attractive. I mean they are talking about giving tax incentives for people to bring their dollar holdings back home that can make the dollar go a lot higher for a while. Things could happen, and we'll just have to wait and see how it works out.

What other currencies do you like right now?

The renminbi. I own, and every chance I get, I buy more, renminbi because it's not that easy to buy the renminbi. You can't just pick up the phone and buy more renminbi, but when I can and I'm there I buy more renminbi. I don't like to use the word "safe" talking about investments, but probably the least risky investment I know of any kind is to own the renminbi. I don't see how one can fail by owning the renminbi over the foreseeable future.

How come?

Well, first of all, it's a blocked currency, and some people say it's artificially low. The Chinese are the largest creditor nation in the world. They have a huge balance of trade surplus so they are doing many things right, so normally it means a currency will rise.

They're not letting it rise as much apparently as they should, so as they continue to free it up, and they are freeing it up, you are going to see the renminbi go higher and higher. In the meantime, I get paid interest for owning the renminbi.

How does inflation factor in, though?

Well, there is inflation in China, I won't say it's serious, but there is more inflation than there should be. That's not good, and part of the reason is because there is a blocked currency. In my view, if they just let the currency rise it would help the inflation problem. They don't see it that way ... There's inflation here, too, even though we deny it. At least the Chinese acknowledge inflation. They may be understating it, but they certainly acknowledge it's there.

What about other emerging-market currencies like the Brazilian real. Would that be interesting?

I don't own the real. I should own the real -- it's certainly gone up a lot. They've started imposing exchange controls recently to try to keep their currency down, which is nearly always a mistake. Other than that, I don't see any other emerging-market currencies that I want to be buying anytime soon.

Any currency that you're actively going to avoid?

The ones I don't own.

Like the British pound?

The pound? No, no, I wouldn't buy the pound with your money. No, no, no, I am not interested in the pound at all. It's got a terrible, terrible fundamental situation just as we do in the U.S. I do own the U.S. dollar, but the pound I am avoiding. That's what I said: All the ones I don't own are the ones I would avoid.

What kind of growth do you see in China?

Rogers: I have no idea. I know that it's booming. I know that every time I go to China, and I've been going to China for 26 years -- the first time I went it was 1984 -- and I assure you China is growing very rapidly and doing a lot of things right. Whether it's 8% or 12%, I mean you look at the Indians. Who can believe the Indian growth number; certainly not me.

I've been going to India for many years, too, and I know they're not growing as fast as China, but they claim to be. The Indians wait for the Chinese to announce their growth numbers and then they announce theirs. They want to make sure they are in the same league. But all of these numbers are made up; you must understand that by now.

So when you said in 2007 that any smart investor should move to Asia, do you still feel that way?

Yes, I certainly feel that way. In my view the 21st century will be the century of Asia just as the 20th century was the century of the U.S.

And is China the country in Asia to look at, or are there other countries that you think will be more strong going forward?

I think that the 21st century will be the century of China. I didn't move to China. I moved to Singapore for a variety of reasons, namely because there's so much pollution in China, which by the way is going to be a great opportunity for somebody. The Chinese are spending huge amounts of money trying to clean up the pollution. But I didn't want to breathe all that bad air ... But, yes, I think there will continue to be fabulous opportunities in Asia.

Now we've heard recently the WikiLeaks claims that China is inflating its GDP and the country's growth isn't real. Do you think that's true?

I'm sure they are. We are too, everybody is. I mean America says there's no inflation. You must shop, you know there is inflation. I mean do you believe any government numbers from any government from anywhere in the world? If you do, you are going to go to the poorhouse very quickly. Most government numbers are phony.

How heavily invested are you in Asia?

A lot. I don't have a committee I have to answer to so I don't sit and figure these things out every day, but lots. I own the renminbi and I own lots.

Is China primarily your investment in Asia?

As far as stocks? Yes. My stock investment is almost entirely in China. I don't own too many stocks around the world. My portfolio is mainly in commodities because if the world economy gets better, commodities will do well because there are shortages. If the world economy does not get better, real assets, commodities, are probably the best place to be because they are going to print more money. Printing money is the wrong thing to do, but they don't know anything else to do, so they'll just print more money. Throughout history when people have printed money, it's been good for real assets.

Now when you say world economies get better and that that will be good for commodities, what about dollar-backed commodities? Won't that hurt those prices?

It won't matter if the dollar goes up, if the dollar goes down, it doesn't matter. I mean they're denominated in dollars, but if the dollar goes down, say, something's got to go up against it, and one of the things that will go up will be commodities.

Plus, there's shortages developing in commodities. I don't know if you've tried to buy any tin recently or any rubber recently or any cotton even. Shortages are developing everywhere no matter what currency the commodity is denominated in.

Now, you've said that gold will hit $2,000. Do you know when -- crystal ball?

Rogers: I wish I knew when. Watch TheStreet.com -- you can get all these answers to market timing. I am no good at it. I explained to you that gold will be $2,000 certainly in the decade, it'll probably be much higher than $2,000 in the decade but maybe even sooner I don't know. But to me it seems pretty clear that it'll go to at least $2,000. If you adjust the old high back in 1980 for inflation, gold should be over $2,000 now.

What about silver?

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Silver at the old high was $50, silver's at $30 now. Silver can certainly go to $50 again and probably much much higher over the next decade.

It just seems you'd be selling your gold this year with all the hype that's been going on.

There's been some hype about it but most of the public, for instance, is selling gold. If you walk around the streets in nearly any American city you'll see signs -- sell us your gold. The public is in there selling their gold, selling gold jewelry, as fast as they can.

I spoke not too long ago to 300 major international money managers from around the world, sophisticated people with a lot of money under management. And the moderator, I didn't know why he said it, but he said, "How many of you have ever owned gold?" Seventy-six percent of those people had never owned gold.

I was stunned, so was the moderator, so was everybody, stunned at how few people actually had ever owned gold, so it's still an underowned asset, and think about zinc. He didn't say zinc or cotton or some of the other commodities. None of them would have ever said they have ever owned zinc and cotton and other commodities, so the commodity bull market has a long way to go.

How do you own these commodities?

I have an index called the Rogers Commodities Index. I own commodities through those indexes because my lawyer won't let me buy individual commodities anymore because I'm talking to people like you about commodities all the time ... and by the way, many studies have shown that index investing outperforms nearly all active managers anyway year after year, so I'm quite happy just owning indexes.

Let's go to your outlook for 2011. What are three things you are going to be paying attention to in the world economy in the next year?

Everything, everything that's going on: central banks, currencies, commodities, stocks, bonds. I'm short bonds, I'm short U.S. long bonds. I try to pay attention to everything. I cannot be a successful investor unless I pay attention to everything.

You mentioned shorting bonds -- so in terms of commodities, stocks, bonds and cash what's your diversified portfolio?

I'm mainly long commodities. My investments are commodities and currencies right now. I'm short bonds, as I mentioned, I'm short an emerging-market ETF, because emerging markets were so hot in the last couple of years. I own some shares that I've owned for years. I have all my Chinese shares that I've ever owned. I bought my first Chinese shares back in 1999. I don't like to sell things unless there's a good reason.

Are you short any U.S. stocks?

I'm short one ETF, one index ETF.

Are you short any other bonds in any other countries?

No, only the U.S.

Let's go to your take of Europe vs. the U.S. Which is worse?

Well, the U.S. is the largest debtor nation in the history of the world, but some individual European countries are in gigantic trouble.

Greece, Greece is terrible. The U.K. is terrible. They have serious, serious problems. Ireland is in serious trouble, which is worse? The U.S. can print money and therefore it can conceivably put off its problems further than anyone else. But at the same time, it looks like the European Central Bank is going to continue to bail out some of the European countries that are in serious trouble.

They're all bankrupt. The U.S. is bankrupt. Greece is bankrupt. We're sitting around deluding ourselves. The U.K. is bankrupt.

So you would call the U.S. insolvent as well?

Yes, if you look at the numbers there's no way the U.S. can ever pay off its debt. I haven't done enough homework to know, but there are friends of mine who've said the U.S. cannot pay its debt. Within five years, the U.S. will be defaulting on its bonds. I have not done that homework myself.

OK. So what is the fate of the EU?

What will probably happen is the euro will break up sometime in the next decade and when that happens some countries will probably pull out of the European community, the European Union. I would expect some form of the European Union to last longer than perhaps the euro, the euro as we know it now.

The euro is a brilliant concept, the EU is a brilliant concept. Unfortunately, the Europeans have brought in too many countries too fast, if you ask me. They should have done it slower and in a more concentrated manner, but I'm not European so I can't tell them what to do. So you may see the euro fail eventually -- don't forget I own the euro now -- and that will cause the EU as we know it to change.

Can you tell the U.S. what to do?

Let people go bankrupt ... You can't just say, 'Oh well, we had 30 years of the most outrageous credit bubble in the history of the world. We've done a lot of other things, we've gone deep into debt, it'll be OK, don't worry.'

The world doesn't work that way. If you go on a drinking binge ... for three weeks, it's going to take a while for you to recover. You are going to have to suffer some pain and start over. The same way with anybody who makes mistakes.

But you did say you were in favor of extending the Bush tax cuts. But won't we need higher taxes in order to help our deficit?

Cut spending. Making people give their money to the government instead of spending it themselves in the way they want to spend it or invest it or even save it ... sending it to Washington is not going to do you any good. You've got to cut spending dramatically and cut taxes if you want to have a vibrant dynamic economy.

Look at the successful Asian economies. They don't have staggering expenditures. They don't have staggering tax burdens. They encourage people to save and invest, and they do, and they have very dramatically successful economies.
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-- Written by Alix Steel in New York.

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