It's all over the news... China revalued its currency last week, and it took the currency off the dollar standard. There's nobody better to ask about this than investment legend Jim Rogers...
Jim Rogers, if you didn't know, returned investors about 40 times their money in a decade, and then retired. Even more amazing, it was the decade of the 1970s, when stocks did absolutely nothing.
I first met Jim at a private black-tie dinner in New Orleans in the mid-1990s. We sat next to each other for the night, and traded investment stories, though mine couldn't compete with his... As the author of the bestsellers Investment Biker and Adventure Capitalist, Jim has no doubt logged more miles searching for investment opportunities than anyone alive.
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We caught up with Jim by phone from Shanghai earlier this month, where he was apartment shopping. Jim latest book, Hot Commodities is also 'hot' these days, and our own Jay Livingston quizzed Jim on commodities, the revaluation of the Chinese currency, and much more. With the news out of China today, let's cover Jim's thoughts on China.
Investment U: Let's talk about China. You're in Shanghai right now. Are you thinking about moving from New York?
Jim Rogers: Well, that's one reason we're here, because we're contemplating moving to a Chinese-speaking city, and Shanghai is at the top of the list - at the moment, anyway. Our child is bilingual. We have a 25-month-old baby girl, and she's bilingual. We got her a Chinese nanny from the beginning, whose instructions were to only speak Mandarin to the baby.
So she is literally bilingual, at age 25 months, and we're doing everything we can to encourage and develop that. It doesn't do any good to be bilingual at 25 months if you don't keep it up; you'll forget everything you ever knew by the time you're 25 years old, or even 12 years old.
There are a lot of exciting things going on in China, and in Chinese-speaking areas. And even if I'm wrong about the baby - teaching her Chinese - even if China's not going to be the next great country in the world, there's still a billion and a half people in the world who use Chinese, so it's not a complete waste. It's not like I'm teaching her Danish or something.
There are 7 million who speak Danish, and there are a billion and a half who speak Chinese.
IU: You talk in your book about the importance of the Chinese currency, the yuan (or renminbi) being allowed to float against other currencies instead of being pegged to the dollar, as it is now. When might the Chinese float the yuan, and what might happen?
The Chinese are moving more and more towards making it more convertible. They're letting Chinese institutions invest abroad now. Chinese tourists can get passports easily now... And they can take, I think, up to $6,000 if they go on a trip. So you're starting to see huge amounts of Chinese travel.
So they're taking very small steps toward making this a completely convertible currency. It will happen by 2007, under the terms of the World Trade contract they have - you know, they joined the World Trade Organization. And they've got the Olympics in 2008. So certainly by 2008, they're not going to be sitting around here with a blocked currency anymore.
The consequences? Who knows? I'm sure there are going to be unexpected consequences. There always are, when an event is greatly anticipated.
IU: Would you speculate on the possible rise of the yuan at this point? Some expect it will shoot up once it's freed from the dollar peg.
I know that hundreds of billions of dollars are being poured into China to take advantage of the rise in the renminbi. First of all, whenever something like that happens, it wouldn't surprise me if this renminbi didn't go down for a while, because all those people who poured hundreds of billions into China to speculate have got to get it out.
But whether it goes up or down in the beginning, I don't care. I'm going to be buying more of it myself. Because longer term, the renminbi's going to be a big currency, a great currency.
The consequences, again, there have been hundreds of billions of dollars of speculation on the renminbi, and that always worries me. So I know there are going to be some surprises. I just wish I were smart enough to know exactly what the consequences will be and what the timing will be.
I'm not one of the people pouring money into China right now to speculate on the renmimbi, that's for sure.
IU: Is a hard landing in China inevitable at some point, as you suggest in your book?
Yeah, I don't remember if I specifically said... But real estate is where the major speculation has been, and that's where I'd expect the hard landing to center, if you will. It will reverberate out from there, of course. There will be other people who will suffer. That's my view.
I mean, some parts of the Chinese economy will never even know that there's a hard landing in Shanghai real estate, say, or that a bunch of real estate speculators in Beijing went broke. The guys out there producing coal, or building power plants, won't even know that there's a hard landing in other parts of the Chinese economy.
So I suspect it will certainly start with real estate, or something, and reverberate out... But parts of the economy will never know it.
IU: Should there be a hard landing in China, do you anticipate a major consolidation in commodities?
Yes, I do. Something's going to cause consolidations in commodities. We always have consolidations in every bull market in history, no matter what the asset class. In every stock bull market, there have been consolidations along the way.
Again, I wish I were smart enough to tell you exactly what's going to cause them, and the timing, but I'm not. It's pretty obvious to me that if we suddenly see headlines in the Wall Street Journal of some kind of turmoil in China, that commodities would be having a correction, or would go into a correction. But that would be a chance to BUY commodities.
You know, in the '80s and '90s, we had some huge corrections in stocks. In '87, stocks went down what, 35-40% in several months, but people who understood that this was in the context of a major bull market bought more stocks; they didn't panic and sell.
Likewise, in '94 or any of the other corrections along the way in the bull market in stocks in the 1980s and '90s, you made a lot of money. So if you see those headlines, I urge you to buy all the commodities you can. Probably buy all the China you can, too; but certainly, buy all the commodities you can, too.
IU: So if China slows down or crashes, that would be a tremendous buying opportunity in China and commodities?
In terms of commodities, yes... especially in terms of commodities, but also in terms of China.
But again, I wish I were smart enough... If we suddenly have a bird-flu epidemic throughout Europe, I suspect economies around the world will decline and scare people and commodities will slow down for a while. If Fannie Mae goes bankrupt, it's going to scare people. If China goes to war with Taiwan, it's going to scare people.
Something's going to cause consolidations, but buy 'em, don't sell 'em.
By Dr. Steve SjuggeruChairman, Investment U
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