Contrarian becomes pessimist

Contrarian becomes pessimist
William Hanley, Financial Post
Published: Friday, October 03, 2008

It's 8:20 a. m. and legendary investor Jim Rogers, after only a couple of hours' sleep following a red-eye flight from Frankfurt, is pedalling hard on the stationary bike at the Toronto Sheraton Centre gym and giving his hard-eyed view of the world. It is a view that is always provocative and often contrarian.

"I'm pessimistic because America is in recession and that's having an effect on Europe and Asia," he says, adding that the recession will last longer than most and be deeper than most because the U. S. government keeps making mistakes by bailing out one entity after another.
"The 29-year-olds on Wall Street and Bay Street have been driving Maseratis," Rogers says. "That's about to change. All these guys are going to have to learn to drive taxis. "
But the 65-year-old, Alabama-born investor -- who made his reputation as George Soros's Quantum Fund partner in the 1970s and who famously called the current commodities boom -- is not pessimistic about the future of natural resources and, by extension, Canada and the Canadian dollar.

"Canada is a much better place to be than America," he says, while conceding the U. S. recession could hit the country's industrial heartland.
Rogers was in Toronto yesterday --before taking another red-eye flight to his new home in Singapore -- to participate in a noon CEO roundtable and then speak at the Toronto Society of Financial Analysts' annual forecast dinner.

That he moved his young family to Singapore in June, 2007, and sold his Upper West Side New York home for US$16-million speaks to his view that Wall Street will be in decline for at least a generation and that Asia is on the rise. His children speak Chinese. So Singapore, besides being a great place to live, is a good place for them to develop their skills in the language of the future.
"The new financial centre could be in Shanghai or maybe in Singapore," Rogers says. "I really don't know where, but it's shifting from New York and London toward Asia."

So if the U. S. economy is in decline and the markets are struggling mightily, how is one of the world's most successful investors employing his considerable fortune? Commodities He continues to own the commodities themselves, not commodities stocks, because the current drop in natural-resource prices is just a correction that could last a quarter, a half or even a year. He notes that oil has had three corrections of 40% or more since its bull market started in 1990 and come back each time.

Stocks He has been buying shares in some airlines, "a disaster area that's close to a bottom," and some beaten-up Chinese stocks. The planes he flies on are mostly full and fares are soaring. "Airline stocks will shine in the next bull market -- if we have a bull market." Meanwhile, he is monitoring auto stocks, which may become the next disaster area over the coming years. Currencies Rogers is holding on to the Canadian dollars -- "one of the soundest fundamental currencies" -- he began buying years ago when he saw the commodities boom unfolding against a much-improved Canadian fiscal backdrop. "And I will be buying more along the line." But recently he has been buying Swiss francs and yen.

Bonds He has been shorting the U. S. long bond in the belief that the growing mountain of U. S. debt and the necessity to print money to finance it means bonds have made a long-term top. "Bonds will be a terrible place to be for many years to come."
And for years to come, Rogers says, water treatment, agriculture and Chinese tourism will be good places to be. China and India, especially, have huge water problems, food inventories are falling even as farmland is taken out of production and 1.3 billion Chinese are now able to travel freely in the world.

Those are the next big things. The best thing to do now in these clamorous markets, Rogers tells a reporter, might be to do nothing unless you have to. "You might just want to head to the beach."

http://www.financialpost.com/story.html?id=857919