From the July 01, 2006 issue of Futures Magazine • Subscribe!

Conversation with Jim Rogers May 2006

In the May 2005 issue of Futures magazine, we included a conversation with Jim Rogers, co founder along with George Soros, of the Quantum Fund. Rogers, a college professor, author, world traveler, economic commentator and creator of the Rogers International Commodities Index (RICI), was talking about the worldwide bull market in commodities that he had written about in his most recent book “Hot Commodities.”

What was most memorable about that conversation and Rogers’ perspective was, unlike other market experts, Rogers was not peddling the next “new paradigm” but making a logical argument based on solid meat-and-potatoes supply-and-demand economics.

The other thing of course was how dead on he was in his analysis. Since he created the RICI in August 1998, it has produced a total return of 265.59% and a compound annual return of 18.21%, outperforming all major equity indexes as well as other commodity indexes.

This May as the metals sector experience a fairly major correction, many so-called experts started talking about a commodities bubble and about how the commodities bubble may be bursting.

These experts, for the most part, missed the technology bubble and never saw the bull commodity market coming. In fact guessing the next bubble appears to be a growing sport in the financial press. The problem is many of the analysts who are attempting to predict the next bubble missed the last one, have been constantly bullish the stock market, attacked alternatives to traditional stock and bond holdings and benefit from a equity centered investing.

With all this talk of a so-called commodity bubble, we decided to go back to Jim Rogers to get his assessment on the status of the bull market in commodities and get his opinion on all this talk of a commodity bubble.

Futures Magazine: Do those who suggest a burgeoning commodity bubble misunderstand what a bubble is and what is behind the current commodity bull market?

Jim Rogers: “Yes. If you read the Wall Street Journal everyday, there are eight paragraphs about commodities, there is a whole newspaper about stocks and bonds, if you read the Financial Times there are 10 paragraphs about commodities, there is a whole newspaper about stock and bonds. There are 70,000 mutual funds in the world for the public to invest in stocks and bonds; there are fewer than 10 for the public to invest in commodities, so if this is a bubble it is the strangest bubble I have ever seen. Most people have never bought a commodity in their whole life, it is very strange this talk about a bubble. Yes, some prices have gone up, zinc and copper for instance. But most commodities are far far far below their all-time high. Sugar is 80% off of its all-time high and if you adjust most of these prices for their historic highs based on inflation, these things are 80% or 90% below their all-time highs. Sure zinc and copper and oil have made all-time highs but even those, if you adjust for inflation, are below their all-time high; it is a very strange bubble if only four or five of the whole universe of commodities are at their all-time high. People who talk about bubbles don’t know markets, don’t know history, haven’t done their homework on what the facts are.

In bull markets everything eventually makes a new all-time and it usually is several multiples above its old all-time highs; this is nothing like a bubble, that is such absurd talk. You notice that people who make those statements are not people who saw it coming but people who couldn’t even spell commodities a year ago, didn’t know what a commodity was two years ago and now all of a sudden they are making pronouncements as though they know something about it.”

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