Mostly: Classical

[amarksp]

"Too bad about the weather."
Rogers can't get enough of Canada
Commodities guru says loonie going over US$1

William Hanley in New York
Financial Post

Saturday, October 23, 2004

Perhaps Ottawa should hire Jim Rogers to be a spokesman for Canada, we're thinking as he extols the virtues of the Great White North over a quick lunch at La Rosita, a Latin diner on Broadway in the Upper West Side of Manhattan around the corner from his house. So bullish on Canada is Rogers, famous for his world travels and his investing acumen, that he could be a roving ambassador for Canada and its bounteous natural resources, its underpriced currency and, uh, even its fiscally prudent politicians.

"Don't sell your Canadian dollars," he declares above the salsa music pounding out a Latin beat as we settle in at one of La Rosita's simple tables. "The Canadian dollar is going to go to US$1.06, to pick out a number. It was US$1.06 in the early '70s. It's going back to US$1.06 or even higher. So don't sell the Canadian dollar and don't buy the American dollar."

It's been more than a year since we last had lunch down Broadway with Rogers. But he's still on message: Commodities -- from oil and copper to cotton and sugar -- are in a long bull market while stocks and bonds are in bear markets. Even as we sit here and check out a menu that wouldn't be out of place in just about any Latin American country, the price of copper futures are plummeting 20% from the recent highs. But Rogers is unfazed. "It's wonderful news," he says, explaining that it's normal for markets to consolidate, that prices going straight up can hurt a lot of people.

Anyway, commodities are still on the bull market roll he foresaw them going on in July, 1998, when they were as out of favour as Internet stocks were and he launched the Rogers International Commodities Index. The index, composed of varying weights of 35 commodities, was up almost 200% over the six-plus years to the end of September versus 7% for the Standard & Poor's 500-stock index.

Rogers is further encouraged by a new study, Facts and Fantasies about Commodity Futures, by academics at Yale University and the Wharton School at the University of Pennsylvania, which argues that commodities as an asset class performed better over a 45-year period to March, 2004, than equities and bonds and with less risk. He notes that the boom in equities in the 1960s and junk bonds in the 1980s were accompanied by academic studies showing why they were worthy investments.

Rogers orders yellow rice -- rice happens to make up 2% of his index -- and black beans (soybeans weigh in at 3%), which are staples he learned to appreciate on the prodigious travels he chronicled in his two best-selling books.

He wrote Investment Biker in the early '90s after driving his BMW motorcycle 147,000 miles around the globe. Adventure Capitalist: The Ultimate Investor's Road Trip was published last year after he and his companion, Paige Parker -- now his wife -- toured 116 countries in a custom-built bright-yellow Mercedes-Benz with matching trailer.

Lunch Money, who doesn't travel nearly so well, gets adventurous and orders two burritos filled with scrambled egg and bacon with the ubiquitous yellow rice and some hot sauce. The glass of ice water provided by the fast-moving waitress comes in handy.

What Rogers reckons will come in handy for investors is the resolve to buy more commodities on pullbacks like the one copper and some other metals are undergoing on this mid-October day in New York. "Something's going to cause a pullback, whether it's China or I don't know what. But I'm looking forward to it and I want to buy more. Everybody should because [the bull market in commodities] has got a long way to go."

For someone who made his fortune making big trades alongside partner George Soros in the Quantum Fund, allowing him to "retire" from Wall Street in 1979 at age 37, Rogers says he's basically disposed to buying and holding his commodities positions and opposed to trading. "I'm not smart enough to be a good market-timer," he says, pouring his bowl of black beans on to a big plate of yellow rice.

"What I would like to see is the front page of the National Post read 'Turmoil in China' because a lot of people would be scared and commodities would be down a lot and it would be a great opportunity to buy commodities and buy China. That would be my ideal way for this to play out. I know there are going to be such buying opportunities -- when and how to identify them, I don't know. I only know the bull market in commodities is going to go on a long, long time."

So confident is he that he has a book, Hot Commodities, coming out in December, just in time for it to be a stocking-stuffer for investors becoming disillusioned with equities and bonds. Though he vowed never to write an investment book, his publisher persuaded him to do so because there were no books about commodities. Now Rogers expects there will be lots of books about investing in commodities published over the coming years, just as there were scores of books about stocks in the bubble years.

"My plan for the U.S. stock market and most Western markets is to sell short sometime this fall or winter because of the [presidential] election," he says, adding that 2005 and 2006 will be bad for those markets. "If you want to invest in North America, invest in Canada.

"You've got the currency going for you. You've got raw materials going for you. You've got a much-better-managed economy going for you. Canadians have done a much better job. You've got a balance-of-payments surplus. A government surplus. You're paying down your debt. You've got the wind at your back. In America, the budget deficit is getting worse. The trade deficit is getting worse. We're financially and militarily in trouble. The wind is in our face."

Rogers blames the overextended U.S. position on chairman Alan Greenspan -- "he's never been too smart" -- and the Federal Reserve's overly accommodative monetary policy and, to a lesser extent, President George W. Bush and his big-spending ways, though he says he won't vote in the Nov. 2 election for Senator John Kerry, either. "Who ever wins the election," he says in the gentle southern twang that has stayed with him since he grew up in Demopolis, Ala., "most people are going to have a bad time in the stock market."

Better that investors buy oil, which makes up fully 35% of the Rogers Index and which he says will surprise people by how high it goes and how high it stays. "There have been no great oilfields discovered in the last 35 years. Analysts are saying it will average US$35 a barrel in 2005 (from US$54 now). It could touch US$35, but what's going to keep it there? On an inflation-adjusted basis, oil should be over US$100 and will go over US$100."

As with all commodities, the oil bull market will not last forever. They never do. In the meantime, though, "everything's going to go a lot higher," including soft commodities like sugar and cotton, which both have compelling reasons to appreciate in price.

Rogers dispatches the last of his beans and rice. If the South Beach Diet is a favourite of the low-carb set, then perhaps La Rosita's high-carb fare could become the North Broadway Diet. At US$13.50 with tip and tax, the bill is high value as well as high carb.

Jim Rogers, who flew in very early this morning after two weeks of speaking engagements around the country and was kind enough to free up some time, is ready to get back to his home and hearth around the corner. But not before he reiterates that he's "wildly optimistic" about Canada, its currency and its commodities.

"I'm not saying your politicians are good, but they're sure doing a better job than ours." He pauses, then laughs. "Too bad about the weather."