Jim Rogers will take his cue on interest rates from the market, and not the U.S. Federal Reserve’s projections, since central banks “really just follow the market.”
The chairman of Rogers Holdings told BloombergQuint that he sees the U.S. dollar rally continuing, which in turn could pressure most other asset classes around the world. Aside from the dollar rally, the big bet Rogers is making right now is on Russia. Having visited the country last week, Rogers believes that Russia, an isolated and “hated market” so far, is quickly gaining a lot of favour in the new regimes of Europe and the U.S.
India was a Rogers favourite around the general elections of 2014, and while he applauds Prime Minister Narendra Modi for the Goods and Services Tax push, the veteran investor is disappointed by the demonetisation drive that is “ causing chaos for a lot of people.”
Here are excerpts from the conversation:
‘Follow The Market’
The long-elusive 25 basis points Federal Reserve rate hike that everybody has been waiting for has finally come through. Is the U.S. central bank moving in the right direction?
Well I know that you all have to pay attention to the Federal Reserve and other central banks; but I don’t pay so much attention. That is because they really just follow the market. You know that Federal Reserve, last December said they will raise interest rate four times in 2016. They raised interest rate once. So I just don’t pay attention to them. They follow the market. But, you should follow the market and not the central banks.
As you said, Janet Yellen had projected four interest rates hike in 2016 and only one came through. Now, this time the Fed is talking about three hikes in 2017. How much do you think they will really carry through with?
The thing with the Federal Reserve is that the market will tell them what to do! I suspect, as you know, interest rates have already started going up in the market, and I suspect you will see the market going higher and higher, because we have inflation coming back. We have staggering amounts of debt coming from America if nowhere else. But everybody has a lot of more debt coming.
So I suspect the market will continue to go higher, whether the Fed raises interest rates once or four times, I don’t particularly care. I’m watching the markets. And the interest rates in the market are going higher.
U.S. Markets ‘Far Ahead Of Itself'
The Dow Jones has been trading at life-time highs lately. Some are of the opinion that the U.S. equities are running slightly ahead of the projected growth. What is your opinion on U.S. equities, especially in the backdrop now that you have Donald Trump as the President-Elect?
Well Mr Trump has said he is going to cut taxes. That’s great for any economy. He has said he is going to rebuild America’s failed infrastructure. We desperately need it, it has been a problem, and the market is paying attention to that. He said he is going to deregulate a lot of things. The market loves it because they expect it to be better. He said he is going to cut taxes for corporations. Which means their profits would be higher.
But I doubt where the money for all of this will come from. At the moment everybody is watching the good news, and not thinking about the possible bad news.
Mr Trump has insisted often that he will have trade wars with China, India and other people, and the market is ignoring that right now. Maybe he’s not going to do it. If he does stay away from the trade wars, the American economy will be better next year, as will the world economy. But, yes the market is far ahead of itself at the moment.
Trump Boost For The Dollar?
You have also recently spoken about having large positions in the U.S. dollar, and you know Donald Trump has spoken about imposing import duties from emerging market countries; but he has also spoken about increasing exports from the U.S which would be helped by any weakening of the dollar. What is your position on the U.S dollar right now? What’s the outlook?
Well I own a lot of the U.S. dollar, and I have l for a while as you know. I own it partly because there is a lot of turmoil coming and people look for a safe haven in times of turmoil. They think the U.S. dollar is a safe haven. Mind you, it’s not, but people still think it is. Plus, American corporations have three trillion - trillion with a ‘T’ - U.S. dollars outside America.
Mr Trump says he is going to figure out a way to get them to bring that money back. If he gets three trillion dollars to come back into the U.S., that’s going to do a lot for the U.S. dollar and it is going to help the markets for a while. So, the good news - we all know the good news that’s what we are focusing at the moment, I own a lot of U.S. dollars because of that.
Do do you think that we have reversed the course of excessive liquidity supply from central banks?
All the central banks around the world continue to print money. The Japanese, as you know, said ‘unlimited amounts of money’. Europeans, the English, they have all said, we are going to print a lot of money. Even the Americans are printing money, even as they are raising interest rates right now, because the market is increasing the interest rates, but there is no monetary tightening anywhere in the world, not even in India.
And India has had any way, one of the less bad central banks in the world.
A Troubled 2017?
Which are the biggest factors that will influence global markets now?
The main factor right now is Mr Trump and his talk - which we are all watching here. But again, now we are going to have to start focusing on interest rates and what’s happening in the real economy, where there’s a lot of debt. So, for instance, in India and China too, there is a lot of debt now. There was not as much debt there earlier, even ten years ago. So we all will have to start paying attention to the interest rate burden which everybody is going to suffer.
And unless Mr. Trump can do something about those three trillion dollars of American corporate money overseas - which would help finance the things he is talking about - we all are going to face problems. I expect problems next year in the financial markets worldwide. I don’t expect good times.
The Putin Bet
So where do you see the greatest opportunity right now apart from the U.S. dollar that you spoke about?
Russia is a hated stock market, very depressed right now. I went Russia last week and as you probably know, Mr Trump says he likes Mr Putin. The person who well may be the President of France also likes Mr. Putin, more and more politicians in Finland, Norway are saying ‘we like Mr Putin’.
So Russia is the market which I still find attractive. It’s very depressed still but lot of things are starting to happen.
‘Crude Making Its Bottom’
OPEC has decided to cut crude oil production. In previous conversations, you have spoken about the possibilities of war - should Donald Trump become President. He is the next President now, and in those circumstances would you be bullish on crude?
Yes, crude is making its bottom. If you look back at this time couple of years later – you will see that in 2015, 2016 and 2017, oil made its bottom and will be going higher. I don’t pay that much attention to this though. While I have been watching OPEC for 50 years, we pay attention to what is happening in the real world. In the real world, production is going down. The factors can not make money.
Many people have cut production on their own, so production is going down in the real world. And that’s why OPEC might be able to get away with this, it’s not OPEC though, it’s the market.
Advantage Russia In BRICs
You also spoke about Russia right now, you know I am reading a report where Russian equities have overtaken China on fundamental strength. I would ask you to compare Russia and China - how would you go about it? I am assuming from what you said earlier that Russia would be the preference right now?
A far as buying shares, yes, I’ll prefer to buy shares in Russia now rather than China for the reasons I said. Russia has been the most hated stock market in the world. Finding a market which is hated is where probably you are going to find your opportunity.
Especially in a place like Russia, just as oil prices are getting better and the political pressure its changing. The new Secretary of State in the U.S. is a great friend of Russia, he loves Russia, Trump loves Russia so the pressure is coming off for Russia.
You been pretty bullish on India in the past, How does India stack up given the twin impact of currency and demonetisation? In addition to that, India is also bearing the brunt of the stronger U.S. dollar.
The U.S. dollar is going to go higher, which means that all other currencies will go down. So the rupee will go down and everything will go down in the future. But you know I loved Mr Modi, and when he was about to win the election, I invested in India. Since then he has done one good thing - he brought in the GST which is a miracle and great.
But then he turns around and does other things which are not so good especially what he is doing with the currency right now. I mean he’s essentially causing chaos for a lot of people.