JIM ROGERS DOESN'T take global investing lightly. The co-founder of the Quantum Fund with George Soros pores over reams of charts and spreadsheets when mulling any overseas investment idea. Then he goes to the country in question. And he doesn't fly there — he drives.
That's right. Rogers is so dedicated to getting, as he says, "the straight skinny" on foreign markets that he decided in 1999 to travel around the world to experience them firsthand, a journey documented in the 2003 book "Adventure Capitalist: The Ultimate Investor's Road Trip." Actually, this was Rogers' second circumnavigation of the planet (his first was made on a motorcycle more than a decade ago and chronicled in 1991's "Investment Biker") — and this time, he traveled in style. The 60-year-old Rogers got himself a custom-built sunburst-yellow 4x4 Mercedes convertible, and then hitched a trailer full of creature comforts to the back. He even invited a team of cameramen along to film the trip.
Starting off in Iceland, Rogers and his fiancée Paige Parker traveled east through Europe, across Turkey and the "Stans" (Kurdistan, Uzbekistan and so on) into China, back west through Russia, down the Atlantic seaboard of Africa and then back north along the continent's east coast into Egypt, Saudia Arabia and India. Then he went south through Indonesia and Australia, over the Pacific to South America, up through the West Coast of the U.S. and into Canada — finishing the trip, after three years, 116 countries and 152,000 miles, at the doorstep of his Upper West Side mansion in Manhattan.
Along the way, Rogers kept his eye out for good deals, and he found many. Angola, he argues, after years of war and the death of guerilla leader Jonas Savimbi, will become a major player in Africa. East Timor, with vast natural resources, is on the verge of becoming "the next Kuwait." China, not the U.S., will be the dominant nation of the 21st century.
Rogers also found a number of trouble spots. Russia, he says, is rife with corruption and is disintegrating rapidly. Egypt is a powder keg. Pakistan, splintering from within, won't last as a unified country. Mexico, with its declining oil revenues and dwindling direct investment, is in deep trouble.
SmartMoney.com asked Rogers, whose journey set a Guinness World Record for distance traveled by horseless buggy, for some tips he's gleaned from his travels, which currency he thinks has the most potential (it's not the dollar or the euro) and why he thinks commodities are the place to invest right now.
SmartMoney.com: When you drive into a country, what do you look for to help you assess its economic prospects?
Jim Rogers: When you cross a border, you learn a lot of what you need to know. You learn about the bureaucracy. You find out about the black market, if there is one. Is the currency sound? Is it freely tradable? Do you have to pay bribes? And when you drive into the interior, you learn about the infrastructure. Is there an infrastructure? Is it being maintained? Is there electricity? Is there radio, television, newspapers? If there is no black market, that's usually a good sign. If there is one, how high of a premium do you have to pay for the currency? A small premium is a good sign. A big premium means things could fall apart any day. As you get further into the country, you find out about corruption. Are you being harassed by the police? Are there hotels, businesses, farmers, and if there are farmers, are they using machines, or just plows and hoes? What kind of vehicles are on the road? How easy is it to get gas and food? It all starts coming together, and usually by the time I get to the capital, I have a pretty good idea whether or not I want to invest in the country.
SM: Your take on the disparities between the two global powers emerging from communist rule — China and Russia — is rather eye-opening. How do the two differ?
JR: Russia is a disaster that's spiraling into a catastrophe. The Soviet Union was the largest empire that the world has ever seen, and probably ever will see, and now it's breaking up. In the former Soviet Union, there were 124 official ethnic groups, and most of them didn't want to be part of the empire. It's already broken up into 15states. It will be 50 states or 100 states before it's over. When you drive across Russia, you find that much of the country isn't paying much attention to Moscow anymore. Moscow doesn't have control over anything. There is capitalism, but it's outlaw capitalism — the Russian mafia is everywhere. [President Vladimir] Putin has no power, and the Red Army doesn't, either. It still can't handle Chechnya. The whole thing is in the process of disintegrating. There's no reinvestment in infrastructure. People are stripping what they can and selling it.
The Chinese, on the other hand, have had a long history of entrepreneurship and capitalism, and they're on the rise again. They work from dawn to dusk. They save and invest 35% of their income — we save and invest 2% to 3% of our income in the U.S. In addition, there's this huge population of expatriate Chinese, and they're pouring back into the country with their expertise and capital. Nobody is pouring back into Russia — everybody's trying to get out of Russia. And Russia never had a solid entrepreneur class. You want some solid investment advice? Make your children and grandchildren learn Chinese, because the 21st century will be the century of China. The 19th century was the century of the United Kingdom. The 20th century was the century of the U.S. The 21st century will be China's.
SM: During your first trip, you thought several countries in Africa, such as South Africa, had a lot of potential, but you've changed your mind on a number of those countries. What's changed?
JR: During my last trip, I wasn't so much optimistic about South Africa as I was of the opinion that the jury was still out. I wondered whether it was going to make it or not. Now I'm sure it's not going to make it. I wouldn't put any money into South Africa. My enthusiasm was tempered because I found that some of the leaders who looked good on paper and were saying the right things have turned out to be charlatans and just as bad as the previous dictators and thugs.
SM: You were very impressed with Tanzania, though.
JR: Yes, I'm very optimistic about Tanzania. First of all, as a tourist, you can get everything one would want from an African experience. It's got the best wildlife, the best game, it's got Zanzibar, beaches, Kilimanjaro — it's terrific. And they are opening up. The country was a hopeless socialist poster child for decades, but now it has realized its mistakes, and its leaders they say they're changing. We'll see in a few years whether they mean it or not.
SM: You've been very bullish on commodities over the past few years. The commodity index you founded in 1998 — the Rogers International Commodities Index — is up more than 90% since then, more than any other index in the world. Why do you think commodities are the right place to invest your money now?
JR: The main reason is that supply and demand have gotten out of whack. Nobody has built much productive capacity in the commodity industries for a couple of decades. People are looking for hot new stocks or mutual funds, but nobody's looking for lead mines or sugar plantations. There was a huge bear market in commodities in the 1980s and '90s, so productive capacity has declined while demand has continued to grow. So you have supply down and demand up. There were big inventories built up during the cold war, but most of that's been liquidated. When investing, you should always buy the commodities that haven't moved yet, so I guess at the moment that would be sugar and coffee and orange juice. In other words: Buy breakfast.
SM: You've argued that the dollar, which has lost considerable value compared with the euro and the yen in recent months, could lose its status as the world's reserve currency. When do you see that happening?
JR: It's not that it could, it will — just as the pound sterling lost its status. It could be in 20 years, it could be 10 years. We're the largest debtor nation in the world. We owe more than seven trillion dollars to foreigners. If you add up all of the foreign debts of every debtor nation in the world, our foreign debts exceed them all. So there's no question that there's a problem, but we're not doing anything to solve it. In fact, it's getting worse, and people are already looking for other candidates to replace the dollar.
SM: What do you think of the euro?
JR: The euro is flawed. I own the euro now, but it's got its own problems. I think the euro [zone] will break up and disintegrate, because when [the European Union] put it together, they didn't do a very good job of writing the contract. Trying to tell the Portuguese and the Finns and everybody else that they have to do the same thing and synchronize their economies is a mistake. In theory, yes, it could work, but they're trying to make it happen too fast, and that's going to lead to problems down the road.
SM: What about the Chinese yuan?
JR: That's the only currency I see on the horizon that could realistically replace the dollar. It's a blocked currency right now, so you can't trade it, but it will eventually become fully convertible because, for one, China has deals to do so with the World Trade Organization, and two, if nothing else, China will never be able to develop into a great economy if it doesn't have a convertible currency. China has a huge population, a big economy, a large balance-of-trade surplus and huge international reserves, so if any currency could replace the dollar as a reserve currency, it would be the yuan.
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