An independent professional's take on the latest news and trends in global financial markets

Jim Rogers Tackles Dr Doom

There has been an entertaining but important public spat between Jim Rogers, the global investor, and Nouriel Roubini, the ultra-bearish New York economist who wrote an article in the Financial Times last week arguing that we are facing a monster bear market and “the mother of all bubbles” as a result of policymakers’ cheap interest rate policy. Here are some extracts from an interview between Jim and Damien Hoffman. The full text can be found here.

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?

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(ly) off the bottom, but nowhere near its old highs. Look at Citigroup. The stock is up 3 or so times off the bottom …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.


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 its former all-time high in 1980, gold should be over $2,000 an ounce right now if you want to say its 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.

On US equities

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!

Written by Jonathan Davis

November 10, 2009 at 10:57 PM