Agora Financial’s Rude Awakening

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Laguna Beach, California

• Commodities bounce back – The bumpy bull market road,
• Jim Rogers on his that bike ride and resource investing,
• Teaching the kiddies Mandarin and plenty more…  

Eric Fry, reporting from Laguna Beach, California…

Investors rediscovered commodities yesterday. The gold price jumped about $15 to $826 an ounce, crude oil rebounded $3 to $116 a barrel and wheat soared the 60-cent “limit-up” to $8.50 a bushel.

Why the sudden interest? Aren’t these the very same commodities that investors have unloading recently?

Over the last thirty days, the price of gold has tumbled more than $150 an ounce, while the price of crude oil has dropped more than $30 a barrel. These severe price declines, the experts have been busily explaining, prove that the commodity bull market is over. The experts have also been explaining that the commodity bull market was little more than a speculative bubble. Therefore, now that the bubble is bursting, investors can return to the business of buying overpriced American stocks and low-yielding Treasury bonds. And most importantly, investors can return to the business of buying U.S. dollars.

While the commodity markets have been slumping, the U.S. dollar has been bouncing off its all-time lows. The dollar’s newfound strength, the experts have been busily explaining, show that a massive dollar rally is now unfolding. The experts have also been explaining that the U.S. economy is much stronger than most folks realize. Therefore, investors ought to load up on dollars and/or dollar-based assets, while not forgetting to unload their commodity investments.

“Not so fast!” says James Rogers, globetrotter, author and commodity fan. “The shortest bull market in commodities lasted 15 years and the longest bull market lasted 23 years. So if history is any guide, this bull market is going to last until sometime between 2014 and 2022…The commodity bull market will come to and end someday, but we have a long way to go… ”

Rogers argued the bull case for commodities during his lively presentation last month to the Agora Wealth Symposium in Vancouver, Canada. Throughout the 45 minutes he stood behind the podium, Rogers repeatedly urged the conference attendees, “Figure out ways to protect yourself.”

Read on for the details…

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Beware the Dollar!
By James Rogers

I recently spent three years going around the world. My then-fiancé, she is now my wife, Paige Parker, and I spent three years driving around the world. We drove 245,000 kilometers and went through 116 counties.

We set out in Iceland, drove through Europe, Turkey, China, Korea, Japan, back across Siberia. We went into Mongolia, all across Russia, around Europe, 32 countries in Africa, through the Middle East, down through Australia, New Zealand, over to South America, then up through Central America, up to Alaska, back down to the southern part of the US, back to New York and then we stopped and rested for a while.

We thought we deserved to rest, since it had been 245 thousand kilometers, 3 years on the rode, 116 countries. One result, by the way, of resting for a while, is that we now have a baby girl. I had never had a child before. I used to feel sorry for people who had children. I thought children were total waste of time, money and everything else. I was never going to do anything so foolish as to have a child.

I was completely, totally wrong.

This little girl is so much fun for me. I cannot get enough of this little girl, 24 hours a day, 7 days a week. If there is anyone in the room that hasn’t done it, I encourage you to get home and get on with it. Take a day off, take a half a day off. This is a lot of fun. In fact it’s so much fun, we recently did it again. We now have another little girl. She’s four months old…And both of these little girls will be fluent in Mandarin.

China is the next great country of the world, whether we like it or not. The 19th century was the century of the UK, the 20th century was the century for the US, but the 21st century is going to be the century of China. Yes, they call themselves Communist, but let me tell you that they are among the best capitalists in the world right now. In China they save and invest over 35% of their income. In America we save and invest 2% of our income. In China when they come to work, they don’t say, “How many days of holiday do I get?” they say, “How many days can I come to work?” They know how we live in the West and they want to live that way too. They are working from dawn to dusk. They are saving and investing.

China is changing the world and it will continue to change the world for the rest of this century. There will be setbacks along the way, needless to say. As America grew to power and glory, it had some horrible setbacks. But we did a very good job and became a very successful county. China will have those setbacks too.

So I encourage you to learn more about China. It’s going to change the world. The single best advice I can give you of any kind is to teach your children and your grandchildren Chinese. Because it’s going to be the most important language in their lifetime. My little girl is five and she’s perfectly fluent in Mandarin. She speaks it like a native. When she was born, I got her a Chinese governess and I told the governess to only speak Mandarin to this little girl. So I’m not just standing here talking about it. My family recently moved to Asia so that these two little girls would grow up speaking Mandarin. The best skill I can give for children born in 2003 and 2008 is to be completely fluent in Mandarin. So I’m living it and spending a lot of time and money on it.

The other thing we need to understand as investors is the US dollar. The US dollar has been the world’s reserve currencies for 60 years or so. That’s in the process of changing. The US dollar is now a terribly flawed currency. As recently as 1987, the US was a creditor nation. Now it’s the largest debtor nation in the world has ever seen. We in the US owe the rest of the world $13 trillion. Now, $13 trillion in debt is a horrible number to owe the rest of the world, but what is worse is that the debt is rising at a rate of $1 trillion every 15 months. Every 15 months the US goes deeper into debt by $1 trillion. That’s very terrifying arithmetic…You’ve got to protect your self, your family, your clients.

I showed you pictures of my little girls. They are American citizens. They have bank accounts. But they do not have American bank accounts, they have Swiss bank accounts. They know what’s happening to the currency. They know what Washington is doing to the value of the dollar. They know in their lifetime that the dollar will be problematic at best. I will urge you to take some lessons from my little girls. Figure out ways to protect yourself…

Let’s turn to the financial markets. In the 80s and 90s we had a big bull market in bonds. But the bond market has made its top in my view. And bonds will be a terrible place to invest for years to come. They are going to be going down. I’m short bonds, full disclosure, I’m short US government long bonds, because my view is that it’s a terrible place to have your money invested. So unless you have a special situation, you’re not going to make any money in bonds. Are any of you bond portfolio managers? I would urge you to get another job because that’s not going to be the place to be. Go back to the boss and say, “Listen, I changed my mind and I do not want to do bonds anymore.”

Stocks in the West were also in a bull market in the 1980s and 1990s. The bull market peaked in 2000 in my view, and has been going sideways ever since. You’re not going to make much money in stocks in the West in the next several years either. Stocks will be, at best, in a trading range. The
stockbrokers tell you that stocks always go up. Well that’s not true. We’ve had many periods where stocks did nothing but go sideways for long periods of time. From 1966 to 1984 stocks did nothing. That was 18 years when stocks did absolutely nothing. We are in a period like that again. If you’re a good stock picker, sure you’ll make a lot of money in times like this. There are people who made money in the 70s. It can be done. But most people are not terribly good at that. Most people need a secular bulk market in order to make money.

Well, we’ve got a secular bull market right now, its in raw materials, natural resources, commodities, call them whatever you want. Most people can’t even spell “commodities.” Let me remind you that 30 years ago people couldn’t spell “mutual funds.” Most people didn’t know what a stock market was. If you’d gone to Paris or Rome, or Madrid, as recently as in 1980s, and said, “Take me to the stock exchange,” most people would have said, “What is a stock exchange?” They wouldn’t have known what you were talking about. Then the world had a big bull market in stocks, everyone watched TV and learned about mutual funds, stocks, and hedge funds…and you know the rest of the story. Well that’s where commodities are right now.

In the world, there are over 70,000 mutual funds for the public to invest in stocks and funds. There are fewer than 100 mutual funds for the public to invest in commodities. It’s an unknown, untouched, underinvested asset class, even though commodities are the second largest asset class in the world,
second  only to the foreign currency market. We have long bull markets in commodities, bear markets again, long bull markets again. I’m not a smart guy, I just went and looked it up. You guys can look it up too. You don’t need me to tell you this.

Now somebody in the room is going to ask, “How long are these periods going to last?” I have no idea how long the current bull market and commodities will last, but I will tell what I found in my research. The shortest bull market in commodities lasted 15 years and the longest bull market lasted 23 years. So if history is any guide, this bull market is going to last until sometime between 2014 and 2022…The commodity bull market will come to an end someday, but we have a long way to go…

[Joel's Note: One way to get yourself out of the U.S. dollar is with the EverBank Debt-Free Index CD. It’s comprised of equal parts Singapore dollar, Japanese yen, Swiss franc, Australian dollar and Brazilian real. Why’s it called a “Debt-Free” CD? Well, all 5 of these economies have no trade deficit - a pretty good place to start if you’re hoping to protect your wealth and out-perform a weak U.S. dollar.

The CDs are available in three and six month terms. For more information, read on here: EverBank’s Debt-Free Index CD.

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[Rude Endnote: And remember, you can listen to all of Jim’s presentation and the rest of the speakers from this years Agora Financial Investment Symposium in Vancouver, on you very own audio set. Click here for details.

We’ll be back with part two of Jim’s speech tomorrow but, in the meantime, we’d like to hear how you think things are shaping up right now. Do you reckon commodities have had their time in the sun, or just getting started? What fate for the Greenback? And what events in the near future might influence the trajectory of these things?

Write to us at the address below and enjoy your day.

Until tomorrow…

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com