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Commodity Investing: Rogers Says Bull Market in Oil Has `Years to Go' (Transcript)June 6th, 2008Jim Rogers, chairman of Rogers Holdings, talks with Bloomberg's BettyLiu from Singapore about Lehman Brothers Holdings Inc. and otherinvestment banks, Federal Reserve policy, airline stocks and theoutlook for oil. Rogers said the increase in the price of crude oil has``years to go'' as known sources of petroleum are dwindling. (Source:Bloomberg) (This is not a legal transcript. Bloomberg LP cannot guarantee its accuracy.) BETTY LIU, BLOOMBERG NEWS: We'd been talking a lot about oil andcommodities, the dollar, the health of credit markets, and the Fed thismorning, and whom better to help us put it all in perspective than JimRogers, Chairman of Rogers Holdings, and he is joining us on the phoneright now from his home there in Singapore. Jim, great to have you back on the program. JIM ROGERS, CHAIRMAN, ROGERS HOLDINGS: I am delighted to be here, Betty. LIU: All right. Jim, first, talk to us about the story of the week thatwe've seen so far, Lehman Brothers, you know, you've been very criticalso far about what's been going on on Wall Street, the accounting, allof that. Do you believe, I mean this is relevant - do you believe that LehmanBrothers is in fact in so good shape that they've got no liquidityproblems or what's your view on this right now? ROGERS: Well, okay, I am still all - short all of the investment bankson Wall Street through the ETF. I know they are all in trouble. I knowmost of them have phony accounting. And you know, in bear markets, theyall go down to eight. So, I just presume they are all going to go toeight before it's over, before the bear market is over. LIU: Do you believe that we could another Bear Stearns as we did in March? ROGERS: Oh, why not, sure. There are certainly - and I'm also shortCitibank and I'm also short Fannie Mae. So, you know, some of thesecompanies have - have horrendous balance sheets and if the bear markethas a ways to go, which in my view, it does, then you are going to seesome really, really low prices. But, Betty, there's nothing unusual about this, just go back and lookat any previous bear market. Financial stocks sell at unbelievably lowprices during bear market. This was not going to be any - well, this one may be a little differentbecause it's just going to be worse for the financial companies duringthis bear market, because the excesses during the past five or tenyears have been so horrendous in the financial communities. LIU: Well. ROGERS: You don't see any 29-year old cotton farmers driving around inMaseratis, but you do see a lot of 29-year olds on Wall Street drivingaround in Maseratis. This is not the way the world is supposed to work. LIU: Well, so, correct me if I'm wrong, Jim. You think we're in a bear market, how long do you think it's going to last? ROGERS: Oh, I have no idea. I'm not that smart. There are plenty ofpeople you can get on your show, tell you exactly how long it's goingto last and how - what day and how long it's going to go - I'm not thatsmart. LIU: All right, Jim. So, tell us, you have also been very critical ofthe Fed and Ben Bernanke. I want to ask you first one thing. How dothink the Fed has handled so far what's been going on on Wall Street?You think that they helped situations or actually made things worse? ROGERS: They made things worse, Betty. They printed huge amounts ofmoney, which has caused great inflation which could cause the dollar togo down, and the Federal Reserve has taken on something like $400billion of bad assets on to its balance sheet. Now, you and I as American taxpayers are going to have to pay off thatdebt some day. What's Bernanke going to do? Get in his helicopter, andfly around, collecting bad debt? Is he going to start repossessingcars, repossessing houses that go bad? I mean, this is insane. LIU: But you know, to be fair, I mean you've had others, such as WarrenBuffett who say the Fed has done the right thing, they came in, theyhelped stabilize the market. Why don't you believe that or why don'tyou see that? ROGERS: There's nothing wrong with the bear market. We've been havingbear markets since the beginning of time. And if we don't clean out thesystem soon - Betty, if the system is so fragile - the collapse of thenumber five largest investment bank in America, not in the world, butin America, will bring down the whole system. What's going to happen in a few years, when it's the number two or thenumber three or two or three of them at once start going bad? If thesystem is that fragile, we better clean it out now because the FederalReserve has already overextended its balance sheet. Betty, the Federal Reserve has $800 billion on its balance sheet. Theyhave already committed $400 billion to bad debt. What then they aregoing to do next? Where are they going to get the money the next timethings start going wrong? LIU: Okay. Okay, well, given that scenario, Jim, as an investor, where are you going to put your money right now? ROGERS: I own commodities, I have been buying agriculture, I boughtairlines today. I bought a lot of airlines around the world today, bothstocks and bonds. Swiss franc, Japanese yen, renminbi, these are thefew things I have been buying recently. LIU: You bought airlines? A lot of people are very bearish on theairlines, talking about the fuel cost. Why are you buying airlines? ROGERS: Well, Betty, you just got through the same why, everybody isvery bearish. No, I don't buy things just because people are bearish,but I fly a lot, and the planes are full. You cannot buy a new - if youorder a new plane today, you couldn't get it for several years. This Boeing and Airbus have problems. You read every day that theairlines are cutting back their capacity. Fares are going up. I mean,Betty, everybody knows about the fuel cost. Is there any airline leftthat doesn't know we have fuel problems? They are adjusting for all it. LIU: Well, that's true. But there's also talk about bankruptcies in the airline industry. And you think some could go bankrupt? ROGERS: How much more bullish in the news do you want? Twenty-fourairlines have gone bankrupt this year. That's great news. You know,five out of the seven largest American airlines went bankrupt duringthis decade. So, fine. Bankruptcies are signs of bottoms, not signs oftops. LIU: All right. Jim, also talk to us about oil. You know, you've beenvery bullish on oil. We've had a lot of people talk about, you and Ihad a debate about whether or not there's speculation in oil marketsright now. You say no, others say yes, like Soros, he says it's going to bubble. What do you know that others don't about the oil market? ROGERS: Look, look, Betty, there are always speculators in everymarket. Look at the New York Stock Exchange right now. You think therearen't any speculators down there on the floor of the stock exchange?There are always speculators. That's what business is all about. I submit to you that most of the people and - I don't know about mostof the people, I shouldn't say that, but we know that the IEA, thedefinitive authority on oil has said that the world has an oil problem.The Saudis have told Bush that we have an oil problem. Betty, if there is lot of oil, please, would somebody tell us where itis, so we can all invest in it? The world has a serious oil problem. Now, Betty, that does not mean that oil cannot go down 50 percent.During this bull market since 1999, oil has gone down twice by 50percent, going down by 50 percent in 2001 and again, in 2000 whateverit was, '05 or '06. So sure, you can have big reaction in any bullmarket. But that's not the end of the bull market. There is no supply of oilunless you - somebody can tell us where the oil is, the bull market inoil has years to go despite new corrections which may or may not come. LIU: Well, but you know, and I know you always hate having me ask youabout - about limits or caps and all of that. But, given thesupply/demand situation that you're talking about, how high can oil go? ROGERS: Betty, I know you - how you're paid to ask questions like that,but I don't know the answer. I'm not smart enough. I know that unlesssomebody discovers a lot of oil, the price of oil can go to $150, $200.You pick the number. Eventually, if it goes high enough, if oil goes to $300, there will bedrilling for oil on the White House lawn. Hillary Clinton won't bespeculating in cattle futures anymore, she will be speculating in oilfutures. She will be out there drilling for oil. If it goes to $300, there will be drilling at Buckingham Palace. Idon't know how high it's going to go, Betty, but unless somebodydiscovers a lot of oil very quickly and very accessible areas, thefacts are the world is running out of oil - out of known oil - knownoil reserves. LIU: Right. You know, staying with oil and commodities, we've seen apullback in some commodities in recent months. But which commodities doyou like right now, Jim, and which don't you like? ROGERS: Well, I mean, yes, a lot of commodities have come down prettyhard. If people are talking about a bubble, I'd like to know whatthey're talking about. I mean, many commodities, nickel, zinc, lead are down 50 percent.Silver is down 80 percent from its all-time high. Sugar is down 80percent from its all-time high. What kind of bubble is that? Cotton isdown 40 percent from its all-time high. Coffee is down is down 60percent from its all-time high. I have been buying agriculture recently, I'm holding off a little bitright now because it looks like Congress is determined to do somethingto drive down commodity prices. If they do, it'll be a fantastic buyingopportunity and I'll buy more. LIU: Jim, you - . ROGERS: But what I bought most recently is more agriculture. LIU: More agriculture? In China, did you buy? ROGERS: I bought agriculture stocks in China. It's not legal for - Imean, it's almost impossible for foreigners to buy commodities -commodities and sales in China. LIU: Right. Okay, also, you've said before that we're half- way throughthe commodity bull run. You still think that, or I mean how long canthis bull run last for? ROGERS: Well, Betty, there are number of acres devoted to wheatfarming. It's been declining for 30 years. The inventory of food is atthe lowest level in 50 or 60 years. We are burning a lot of ouragricultural products in fuel tanks now, as fuel. That's useless,that's hopeless. Talk about a bubble, that's a bubble. It's crazy that we're spending somuch money burning our agricultural products as fuel. But you can go ona long time, nobody has discovered any major oil fields for over 40years. Betty, all the oil fields in the world are in decline. I mean, there'sbeen one lead mine opened in the world in 25 years. The last leadsmelter built in America was built in 1969. Unless somebody startsbringing on a lot more capacity soon, that bull market has got a waysto go. LIU: All right. And Jim, you know, I want to turn back to, of course,the Fed and the banks and all of that. You were talking before aboutsome of the stocks that you're short on. Are you short on LehmanBrothers? ROGERS: I'm short the ETF, Betty, the investment bank ETF, which meansI'm short all of them. I am not short any specific investment banks.First of all, I have too many friends at all of those places, I don'twant to short any of them specifically. So, I am just short at the ETF, which means I am short all of them, Imean some would do well, some will do probably too badly, but the ETFin my view is going to go down a lot more. LIU: Well, does what happened with Lehman Brothers over the past week,does it perhaps stoke your interest in shorting Lehman along withCitigroup? And Fannie, I believe is the one you talked about as well. ROGERS: I'm already short Fannie Mae and Citibank, and have been forsometime. I'm just going to kind of stay with the ETF. It's easier forsomebody like me, who's too lazy to spend a lot of time on any specificone, except for Citibank and Fannie Mae. LIU: Okay. You've also mentioned, Jim, and of course, you're over inAsia. You mentioned that European and Asian banks, they have yet totake off writeoffs the way U.S. banks have. When do you expect thiscould happen and how much are we talking about? ROGERS: Well, the accountants for some reason in Asia and Europe seemto have gone along with the banks that said, ``We don't know that thesethings are bad until they go bad.'' They are writing them off. Don'tget me wrong, they are writing them off. It seems that the Americans, our American banking system has been alittle more proactive and it has gone ahead and written down some ofthese things in advance, and the Europeans and the Asians have not. As they go bad, they will have to write them off. So, with the Asiansand Europeans, it's just a question of - an ongoing scenario will writethem off when they go bad. LIU: All right, Jim. And I got to turn to the dollar very quickly. Whatdo you make of the comments by Bernanke earlier this week, noting thedollar slide, you have been very, very critical of Bernanke on this. ROGERS: It is astonishing. Now, this is a man that under oath inCongress said, ``If the price of the dollar goes down, it doesn'taffect ordinary - it doesn't affect most Americans.'' So, I almost fellout of my chair when I saw him say that. We know the man doesn't know about markets, we know he doesn't knowabout the currencies. Now, we know he doesn't even understand civileconomics, simple economics. So, I was astonished to see him, what, twoor three days - LIU: Right. ROGERS: - suddenly said, ``Well, if the dollar goes down, it affects usall.'' It's called inflation. So, somebody's been teaching himeconomics. It's about time, he should go back and take Economics 101. LIU: All right, Jim. That's all the time that we have. Well, great tohave you with us on that - on the program. As always, love to have youback on. That was Jim Rogers there. ***END OF TRANSCRIPT*** Click here for your Free Commodity Investing eGuide | |