The third Fed rate hike is where you have to start worrying: Jim Rogers

Mini Menon | Updated on January 22, 2018

JIM ROGERS CEO, Roger Holdings

The US dollar is not sound, and may turn into a bubble, says Roger Holdings CEO

The Fed rate hike has sent ripples across bond, equity and commodity markets. Markets are recovering from the knee-jerk reaction. Speaking to Bloomberg TV India, Roger Holdings CEO Jim Rogers gives his perspective on the aftermath of the Fed’s first rate hike after eight years. He also gives his outlook on India, China and Japan apart from the global market scenario.

What are you making of the Fed rate hike and the details of the statement?

As you know, the market interest rates were already going up and the Fed once again just follows the markets. The Fed is just made up of bureaucrats and academics. They don’t know very much. Interest rates are going up. If you follow the Fed, and I guess you have to, the first interest rise from the Fed doesn’t mean very much. The third one is where you have to start worrying. If the Fed raises rates three or four times, then it is usually all over for the stock market. So just keep watching, be worried and be prepared.

So we already know that there is going to be about three-four rate hikes including this one. What is your prognosis for the global markets if you were to look at calendar year 2016?

I don’t trust the government officials as much as you do. I know they said that. Let us see if it actually happens. If the third interest rate hike comes from the central bank, I will certainly be selling shares worldwide. I have already sold junk bonds in America. I will sell a lot of bonds short if that happens.

One of the direct correlations of what’s been happening around the news of a Fed lift-off is the fall in commodity prices along with the global slowdown. Talking about commodities — oil and metals — what is the sense that you are getting? How much of a downside do you see?

Well, I have hedged my gold and silver holdings. I expect gold to go under $1,000 an ounce. What does that mean for silver — $12 or $10 an ounce — I haven’t figured it out.

But certainly under a $1,000 for gold at which point I hope I am smart enough to take my hedges off and buy a lot of gold — whether its $950 or $900, I don’t know.

Base metals seem to be making a complicated bottom as do oil prices. They have been beaten down.

There’s a lot of bad news. They don’t collapse anymore, which usually means we are in the process of making a complicated bottom that I suspect will happen the final bottom in 2016 if it hasn’t already happened.

Let me get more specific in India. We watch crude oil prices very closely. The price went down from $37 a barrel to $35. How much of a downside do you see out there?

I am not smart enough — $32 a barrel or $30 — I don’t know. I am not that good. If there’s a spike down — if something happens like a bankruptcy — it can go to $30 or even lower.

But, I would suspect, and I am not any good at market economy and I am the world’s worst trader, I would say $32 at worst as a complicated bottom.

What are you buying? Or, are you just taking a long break from the markets after this kind of prognosis?

I am not doing much. I am sorting junk bonds as I said. I am sorting US government junk bonds. I might buy some more Chinese shares if they come down some more.

I am looking at markets like Kazakhstan, Nigeria, Iran and Russia — markets that are beaten down. These are the markets that are beaten down because of oil (price slump). The remaining is that I am just watching at the moment to see how this plays out. I don’t have to do something every day.

I want to know more of your trades. There is a lot happening across the world. Let’s break it out. Brazil has been rated as junk and it is a big fall in terms of sentiment. What repercussions do these have on the BRICS? What is your take on Brazil?

I am not investing in Brazil with my money or even your money. Brazil is such a mess and management in Brazil has been such a mess. Until they get a new leader, I am not investing in Brazil.

China is being seen in a structural slowdown. Last time when you said that you had completely exited India and your bet was on China, there was a lot of debate. We are now aware about how China was really the wrong story to bet on. Are you still sticking to that?

Well, China has been the strongest stock market in the world in 2015. They are not the strongest but certainly one of the strongest.

Anybody who says that must be losing money themselves because China has been a very good stock market over the past twelve months — it is up a 15 or 20 per cent. The American stock market is down during that period of time. I am still invested in China. I am still looking for investments.

Many are expecting the Chinese markets or the Chinese economy to slow down structurally. What is your call on the economy?

Well, I expect nearly all economies around the world to slow down. In America, we have had nearly six or seven years without a correction in the economy or the markets. It is long overdue.

Normally, we have corrections every four to seven years in the United States.

So we are overdue. The debt is going higher and higher. Many of our customers are slowing down —China is slowing down and Japan is in recession.

Now, I certainly expect more slowdown to come worldwide. As is said before, I am mainly just watching right now. I have sorted some junk right now — junk bonds in US — and I am mainly just watching.

Let us come to India. Would you reconsider your outlook on India especially after what you have seen from the Fed and the fact that you know that you have exited India?

You know I love India. I tell people all over the world that if you can only visit one country, it should be visiting India. It is an astonishing country and an extraordinary country to visit. It is not a great place for investing my money, unfortunately.

Bureaucracy gets worst and the debt continues to go higher. I tried investing in India a year ago or two ago when Narendra Modi was coming to power. But I have exited. I am still watching. If something happens then sure — if market goes down, if Modi accomplishes a lot more, sure it is a wonderful country.

But I don’t have any money. I don’t have any money in Japan either. Don’t berate me for not investing in India. The Japanese don’t berate me for not investing in Japan.

What is your outlook on the dollar and the currency market?

My largest currency position on the long side has been in the US dollar for the last two-three years. The US is terribly over-indebted country with the largest debt in the history of the world. The US dollar is not sound. But with a lot of turmoil coming, people think US dollar is a safe haven. What I expect to happen is that turmoil will get worst and the dollar will go higher — it is already over-priced — and may turn into a bubble.

My plan is to then sell US dollar. What I will buy, I don’t know — gold or the Chinese renminbi, if it might be convertible by then —who knows. I may even buy the Indian rupee if Modi comes along and gets things done.

Published on December 18, 2015

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