Jim Rogers on sterling – and other things

Jim Rogers is a longstanding contact of mine and never one to miss an opportunity to entertain as well as instruct. Even he, I think, will have been somewhat surprised by the extensive front page coverage of his throwaway remark that the UK and sterling were “finished”. It was a gift for opponents of the UK Prime Minister Gordon Brown and led to heated exchanges at Prime Minister’s Questions in Parliament yesterday. When I emailed Jim about his comments and suggested meeting next time he is in London, he agreed – “if they let me in!”

Jim naturally likes to talk his book, but on this occasion insisted, in a subsequent letter to the Financial Times, that he had no position in sterling, but was merely expressing his views. To find that he is negative on sterling is no great surprise. As so often, his other comments at the conference in Asia where he made his comments were rather more interesting for those of us who have profited over the years from regularly tracking his views.

Here is an extract from one of the longer news reports of what he had to say:

Rogers urges people in Wall Street and elsewhere with MBAs to exchange their degree for an education in agriculture, which he says will be more useful in the future. Blaming the failure of rating agencies to pinpoint the credit crisis on “28-year-old MBA graduates who didn’t know what they were doing”, Rogers says such rating agencies have lost their relevance and should simply be ignored.

Meanwhile, Rogers is also bullish on the yen while bearish on the US dollar, bonds, and stocks. Remembering what happened to the pound sterling when the currency lost its lustre, Rogers says he intends to unload all his US dollars at some point this year. Investors need to be “very worried about the US dollar,” he says. He notes that the rally in bond markets, particularly in the US, is bound to end badly. “If you are a bond portfolio manager, I suggest you find another job.”

He doesn’t believe stocks will revert to their pre-credit crisis bull years and he expects them to trade within a narrow range for many years to come. “If you are an equities investor, start getting out,” he says.Rogers says he made money last year by shorting the likes of Fannie Mae, Freddie Mac, Citi and other investment banks while buying gold, sugar and the yen. “Thank God for Fannie Mae, Citi, Lehman Brothers and Bear Stearns,” he says, referring to how shorting those stocks proved to be right, “otherwise I couldn’t buy lunch.” Just last week, he says he started buying China shares again, without divulging any specific “hot picks”. Generally, he is bullish over a number of companies involved in mining, water treatment, power, building, infrastructure, and tourism.

Turning his focus on the US, Rogers couldn’t help but criticise the US government’s bailout programme of financial institutions – which he doubts will work – and criticise the Federal Reserve for the way it has handled the crisis as well as incoming Treasury Secretary Timothy Geithner for possibly not being the best man for the job at this time. He blasts the US for devaluing the US dollar by printing more money in a bid to stave off any further fallout from the credit crisis.

“The idea that you can fix a period of excess borrowing and excess consumption by more borrowing and more consumption to me is just ludicrous,” he says.Rogers isn’t particularly optimistic about the next administration, noting that president-elect Barack Obama ran on a platform that included a proposal to tax capital – “that’s madness if you ask me,” he says – and protecting the workers. He notes that Obama has backed off from those previously strong stands, however.

My comment: Asian and Chinese stocks are well worth watching. The economic news from China has been deteriorating, but valuations in the region still look attractive. If confirmed, reports that the Chinese are actively considering cutting back on their holdings of long-dated US Treasuries in favour of shorter dated stock, as well as diversifying into other currencies, could have immeasurable effects on world financial markets.