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Where Jim Rogers Is Investing Now
By KOPIN TAN An interview with investor and author Jim Rogers in Singapore. Why he likes agriculture and Chinese airlines, is concerned about currency turmoil and thinks young Americans should learn a foreign language. Stepping off a 19-hour flight to visit Jim Rogers in Singapore is a daunting proposition. First, you must locate his home, nestled in a particularly private, verdant nook nuzzling the 183-acre Singapore Botanic Gardens. Next, his remarkably poised 10-year-old daughter—the blond-haired, blue-eyed Hilton Augusta Parker Rogers, or Happy Rogers to her friends—quizzes you in flawless Mandarin to see if your language skills are up to snuff. Then, Rogers invites you to exercise with him while chatting about the markets. Rogers, who will turn 71 this week, has always been a multitasker. The co-founder (with George Soros) of the Quantum Fund famously retired at 37 to travel the world, and is today a venerable investor, author of six books, and doting dad. Convinced of Asia’s ascendance but put off by China’s pollution, he moved his family from New York to Singapore seven years ago so his two young daughters can grow up speaking Mandarin. Today, Oriental antiques jostle Barbie dollhouses for pride of place in his spacious home. He takes his daughters to school on a bicycle, even though a gleaming Mercedes with an 8888 license plate—eight being the most auspicious number to the Chinese since it sounds like the word for “prosper”—sits in the driveway. imageCJ Sameer Wadhwa/Getty Assignments for Barron’s “I cannot invest the way I want the world to be; I have to invest the way the world is.” — Jim Rogers . What follows is our very sweaty conversation—me from the equatorial humidity, Rogers from pedaling a recumbent stationary bike on the patio, a laptop dripping stock quotes propped on his handlebars. A tantalizing pool beckons from 10 feet away, but he did not once slow down. Barron’s : How do you like living in Singapore, and do you miss New York? Rogers: Singapore has the best of everything—great education, great health care, everything works here. It’s been an astonishing success story over the past 40 years. We’re very pleased here. When I was selling my New York house, I almost backed out; I just couldn’t bear the thought of leaving. But now I’m very happy here. I fly to New York and I realize I’m in a Third World airport. Then I get into a Third World taxi onto a Third World highway. The difference now just slaps me in the face. New York is a wonderful place, with the people and the vibrancy, but I can find the same vibrancy, if not more, in Asia. You’ve been a big proponent of China and emerging markets. What’s your world view these days? This is the first time in recorded history that we have all the major central banks, all the major governments actively debasing their currencies. Japan has said it will print unlimited amounts of money. So Ben Bernanke said, “Wait a minute, we can throw in a trillion dollars a year.” And the Europeans said they’ll do “whatever it takes.” There’s a gigantic ocean of liquidity, and the people getting that liquidity are having a wonderful time. But it’s totally artificial, and it’s going to end badly when it ends, I assure you. Can’t such policies go on for a while? After all, we still don’t have inflation… According to the U.S. government! But you must buy some things: insurance, food, even paper. The price of nearly everything is going up. We have inflation in India, China, Norway, Australia—everywhere but the U.S. Bureau of Labor Statistics. I’m telling you they’re lying. Go to a restaurant in New York, or a grocery store, and tell me that there’s no inflation. [Rogers starts tapping on his laptop]. Look here: In 2001, it cost $9 to go to the top of the Empire State Building. Now it’s $27 to go to the 86th floor, $44 to go to the top, and $67 to go express. The Museum of Modern Art in 2001 was $10, now it’s $25. A cab from Kennedy airport to Manhattan in 2001 was $30 plus tolls. Now it starts at $52. Should the market be near record highs? Or has it run ahead of the economy? Staggering amounts of money being printed has to go somewhere, and it frequently goes into financial markets. But the advance is getting narrower. Fewer and fewer big stocks are going up, which is what happened near the end of the last bubble in 1999. Now, I don’t know how long this will go on, but it can’t go on forever. That said, you can’t really short this market either. Are you bullish about anything? I think agriculture is going to be one of the best investments over the next few decades. The world has consumed more than it has produced for much of the last decade, so inventories are near historic lows. The average farmer is 58 in the U.S. and Australia, 66 in Japan. Old farmers are dying or retiring, and young people aren’t going into agriculture. Young Americans go into PR, not agriculture. Prices have to go much higher to attract labor, management, capital or we’re not going to have enough food in the long run. So how do you invest in agriculture? I could buy farmland and become a farmer—although I would be hopeless at it—or buy farmland and lease it out. Buy shares in farms, farm equipment, fertilizer and seed companies that trade on exchanges around the world. Stock markets in agriculture-producing countries should do better than those in agriculture-importing ones. Retailers, restaurants, banks in agricultural areas will do well. Buy a vacation home on a lake in Iowa, not Massachusetts. And there are listed indexes like the RJA or the RGRA. [The RJA, or Elements Rogers Agriculture Total Return exchange-traded note, tracks the Rogers International Commodity Index, which Rogers designed. The RGRA is the RBS Rogers Enhanced Agriculture ETN]. Capital has fled emerging markets as U.S. interest rates rise. Is it time to nibble? I’ve been shorting some emerging markets like India and Turkey. If you can only visit one country in your life, I urge you, plead with you, to go to India. It’s the most extraordinary country in the world for historic sights, breadth of culture, etc. But, boy, it’s a hopelessly managed place. Countries like India, Turkey, Indonesia that have big balance-of-trade deficits could easily finance things when there’s all this free money. But when people realize there won’t always be this artificial liquidity, then there’ll be problems. Other than that, emerging markets are doing OK. I was pessimistic about Russia for 46 years, and I think it’s becoming the second most-hated market in the world, after Argentina. But I see positive changes taking place, so I’m looking. I bought a few shares of an index, and a few shares of Aeroflot [ticker: AFLT.Russia] because I see positive changes taking place in airlines. I also like Myanmar. There aren’t many stocks you can buy there, and they’re just building a stock market. But Nok Airlines [NOK.Thailand] is a regional airline making inroads there. In the long run I’m excited about Myanmar. Among the Chinese companies I bought shares of after I became a director is New York-listed FAB Universal [FU], a small digital media company. [The company offers copyright-protected audio and video products, while a licensing segment lets consumers download copyrighted media.] The Chinese government has decided to promote and support its rich culture. One way to do that, and it’s a big job, is to become stricter about enforcing intellectual-property rights. Investors have become skeptical about China—the shadow banking system, infrastructure spending, etc. The market is well off its 2007 high. Are you concerned? In general, I don’t like to buy China except when it collapses. The last time I bought China in any significant way was in October, November of 2008. But if and when the market falls, I’ll buy. I’ve read all those skeptical stories about China for many years, and so far they haven’t come true. There will be setbacks: In the 19th century, as America was rising to power and glory, we had 15 depressions, virtually no human rights, little rule of law, massacres in the streets. We had a horrible civil war. You could buy and sell Congressmen in those days—you can still buy and sell Congressmen, but in those days they were a lot cheaper. Sure, China will have problems. But I’m not going to tell my children to switch over to Danish, because China is going to be the next great country in the world. You’ll see problems and setbacks, but if you can find the right industries, companies, people, you will do well. So where are those “right” industries and companies in China? Besides Chinese culture and copyright, the government is giving incentives to support agriculture and food production. Pollution is a nightmare in China, and they know it, so they’re spending lots of money trying to clean up the environment. Water is another huge problem—big shortages in the Northeast, it’s dirty and there’s not enough of it. Then there’s travel. For a long time, the Chinese haven’t been able to travel. Now, it’s easier to get a passport. When I first drove across China there were no highways, hotels, gas stations. Now you can get into a car and actually go somewhere. There’s still a high savings rate, but people are starting to spend more. Chinese tourism—both domestic and international—is going to be a staggering growth business for years to come. I own six or seven Chinese airlines because of that. The Chinese also are spending huge amounts of money on railroads, and their know-how is better than most people realize. So it’s an export market as well, and one company I like is Hollysys Automation Technologies [HOLI]. [Based in Beijing and listed on Nasdaq, Hollysys provides automation and control technology for railways, subways and other industrial customers in Asia and the Middle East.] With China slowly liberalizing its financial system, will you buy “dim sum” bonds, which are renminbi bonds offered in offshore markets like Hong Kong? I wouldn’t buy bonds because I expect interest rates everywhere will be going higher. I’m not optimistic about bonds long-term, although short-term they’ll probably be OK. I’d rather buy the renminbi directly. Even the Chinese are starting to loosen up their interest-rate structure; they have to. So interest rates in China are headed higher. You can also buy commodities because most people, myself included, find it difficult to get to know specific Chinese companies. With cotton or sugar you don’t have to worry about management teams. Sugar prices have fallen some 75% from their all-time highs. Consumption is rising as economies grow and as more people use sugar for fuel. Yes, there’s been a glut, which is why sugar farmers are producing less of it and prices are down. But you should buy low and sell high, and I’m buying sugar as we speak. Recovering sugar prices will also help companies like MSM Malaysia Holdings [MSM.Malaysia; which runs refineries and produces sugar products]. Speaking of commodities, gold is 32% off its record high of $1,921 a troy ounce. Are you buying? I own gold but I’m not buying any more at the moment. Gold went up for 12 straight years, which is an extraordinary anomaly. I know of nothing that has gone up for 12 years without a decline. So gold is now having its correction, but I’d also expect the correction to be different from normal. I’ve said in TV interviews that gold could go to $1,200, and when it did I bought some. But a 50% retracement from its peak would take gold near $960, and 50% corrections can be quite normal. Don’t forget, India is the world’s largest consumer of gold. It’s their second-largest import, after oil. They can’t do much about oil, but Indian politicians are blaming their problems on gold, and they keep putting taxes and restrictions on gold imports. I expect I might get another chance to buy more gold in the next year or two, so I’m waiting. But I’m not selling what I have, and I expect gold to go well over $2,000 eventually. What about Japan? I sold Japan in May. Yes, after it had run up. It was probably too soon, and Japanese stocks could well go up more because of all this liquidity. But I’m not at the party anymore. I’m figuring out if I should go back to the party, but I’m usually not very good at getting involved with something that I’m skeptical about. What’s the longer-term issue with Japan? The fundamental problem in Japan is demographics. If they would let in immigrants or if they would have babies, then Japan could be very exciting. But they’re not doing that, and they’ve got to stop spending money. Domestically, Japan is the world’s largest debtor nation, and [Prime Minister Shinzo Abe] says he’s going to spend even more. It’s astonishing to me that in the last decade or so, politicians all over the world have said the problem of having too much debt should be solved with even more debt! Given your concerns about artificial liquidity, what warning cues are you looking for? I’m most concerned about currency turmoil coming. Look, the yen has declined 25% [against the dollar] in less than a year, a staggering move for one of the world’s most important currencies. The euro is a fabulous concept, but its execution has been bad. And the dollar is tied to the largest debtor nation in world history. I own the renminbi. I also own the dollar, not because I have such confidence in the U.S., but because I’ve got to invest somewhere, and if turmoil comes, people will flock to the dollar. It’s not a safe haven, but it’s considered that way. I cannot invest the way I want the world to be; I have to invest the way the world is. I also own the Singapore dollar because I have expenses here. Singapore has allowed its currency to appreciate as a way to attack inflation—and it’s an export economy. It doesn’t have cotton fields or oil or natural resources, and everything is imported. The Chinese should learn from Singapore. There are 1.3 billion Chinese, and they would be better off if its currency went up, because the cost of living would go down. Yes, some people, like the exporters, would have to adjust. But remember, the Japanese yen has gone up a lot against the dollar over the decades, and Japan still has a trade surplus with the U.S. But China does things its own way, and I think this is one of their mistakes. You wrote a book about life lessons you’d like to pass on to your kids. What would you tell young Americans today? You’ve got to learn a foreign language. At least one! This is not 1953. America’s relative position in the world will continue to decline, and Americans must know about and engage the rest of the world. If I can do just one thing, I would shake up the American education system and make Americans learn more about the world. We have the largest debt in the world. The days when we can get away with not caring about the world are coming to an end. Continue reading
Reaping The Bounty Of Agar Trees
Published: Thursday September 26, 2013 STORY AND PHOTOS BY GRACE CHEN http://www.thestar.c….0&h=413&crop=1 More than meets the eye: Some of the agar tree products at the visitors’ centre. Daily sales on weekends can touch RM100,000. The Gaharu Tea Valley in Gopeng took a total of RM40mil to set up and has a current workforce of 100. On weekends, 2,000 visitors contribute to a rough estimate of RM100,000 in daily sales of tea, biscuits, instant noodles, miracle beauty powders, incense, perfume and oils — all harvested from the surrounding agar trees, standing some 200,000 strong in the 121ha (330 acres) plantation that needs about half a million ringgit a month to run. It took managing director, David Ho, 21 years to build up the business, starting in1992 when he received the first 200 mother trees from a Japanese botanist from Niigata. It took another 15 years of Ho’s personal care before he could get the seeds for replanting, sustaining himself and family on his full-time job as the owner of a heavy machinery business. “When I bought the land for RM10,000 per acre in 1991, my first thought was to plant palm trees. From rough estimates, I would have been able to bring home a clean profit of RM200,000 after five years. That was my initial plan,” said Ho, now 59. http://www.thestar.c…2609_pg26c.ashx Special crop: The plantation has some 200,000 agar trees propagated from 200 seedlings in 1992. A visit from a Japanese secondhand heavy machinery dealer in 1992 changed his mind. “The Japanese dealer and I, we are old friends. During his visit, he introduced a Japanese botanist who revealed he had spent his life cultivating a special crop of agar trees, each containing the genes of a superior lineage from 12 trees. “This botanist wanted someone to propagate his work and he thought I might be a suitable candidate. “But I had to be able to sustain the venture for the first 15 years without income,” recalled Ho. http://www.thestar.c…609_pg26f1.ashx David Ho (l) holds a sapling with wife, Khor Lye Keen. Each costs RM 38. The offer struck a chord with the former student of SM Jelapang, whose favourite subject was Chinese history. The meeting had immediately reminded him of his History teacher, Pan Tau Siew, who had once mentioned the agar tree in one of his lessons. As Ho remembers it, Pan had said it was regarded as divine by emperors as the agar tree was believed to promote longevity. Because it was the norm for emperors to have no less than a few thousand wives, the essence of the agar tree was also sought for its aphrodisiac qualities. “So, I said yes,” Ho said. The 15-year wait not withstanding, Ho had his personal reasons. “Everyone then was either doing palm oil or rubber. I wanted to be different. Call it my shot at achieving immortality,” he ruminated. Stressing it was not his intention to live forever, Ho instead expressed hope to be remembered as the proponent of the agar wood industry one day, just like Henry Ridley was synonymous with the rubber industry in the Malay peninsula. The deal was not without conditions. “I was not to plant any palm or rubber trees on the land because to do so would contaminate the land with pesticides and fertiliser. The botanist was insistent that the agar trees must grow in a fully organic environment as the produce was to be used in medicine,” says Ho, who now holds a 70% share in Gaharu Tea Valley with the rest going to the Japanese. http://www.thestar.c…2609_pg26f.ashx A sample of how infected agar wood looks like. Harvesting the resin (ref to cylinder at top) for incense and resin So, he sat behind the steering controls of his backhoe to do the terracing, draining and to fashion a dam to catch the cascading waters from the mountains. He spent some RM5mil to do the concrete works and played the role of a single parent to the 200 seedlings that later grew into 200,000 trees, giving an estimate yield of some 100,000 seeds a year. The second condition was everything had to be sold back to Japan. The Japanese had big plans for the produce. It is a known fact that agar wood will be worth more when they are infected by a fungus which will trigger the defence secretion of the much sought-after black resin used in perfumes and incense. To do this, workers have to manually drill holes into the bark, following a diamond-shaped pattern. http://www.thestar.c…2609_pg26d.ashx A clean room worker shows off a tray of dried tea leaves at the RM 10 million factory in the plantation. Wooden chopsticks, dipped into a special enzyme made according to a secret recipe provided by his Japanese partner, are then hammered into the holes. Some 15 workers are required for every acre to perform this procedure and provide pre- and post-drilling care. Plans were also made to tap the full commercial potential of the agar tree. Its leaves will be used for tea and herbal soup formulations, plus a miracle beauty powder. Its wood will be for crafts and furniture. The original plan was to realise all this in Japan where a factory had already been set up. Then, disaster struck. In 2011, Japan was hit by what was recorded as the fifth most powerful earthquake in world history. In the ensuing chaos, the factory designated to receive the fruits of Ho’s labour was reportedly swallowed by the earth. http://www.thestar.c…2609_pg26b.ashx To induce the tree to produce the much sought after agar resin for perfumes, holes are manually drilled into the bark. “It was devastating news,” said Ho, who added that the Japanese botanist was unhurt. Immediately, it was decided that operations should move to Gopeng, Perak, where a RM10mil factory with 30 staff was set up. The recipes to harvest the bounty of the agar wood trees were also entrusted to Ho. Today, the primary product of the factory is agar tree leaf tea which is exported to China, Hong Kong, the US, Canada, the Middle East and Indonesia. A rough estimate of 20 tonnes of tea has been exported to these countries. “Currently, the usage rate of the agar trees in the plantation is only 0.1% as the majority of utilisation is focused on only the leaves. Daily, about 1,000kg of agar tree leaves are harvested. After drying, the factory is left with only 300kg for processing. These are then included in formulas for biscuits, soup sachets and even instant noodles, which sees sales of 100 packets per day at RM3.50 per unit,” says Ho. But what of the black resin, which is regarded as black gold to perfumers? “The current price for this black resin is RM2,000 per kilogramme but I will have to wait five or six years to obtain a good yield from the treated trees. Of course, the longer the wait, the better,” said Ho, who has a 21-year-old infected tree in the plantation, a must-hug feature for visitors. While he waits to harvest the black gold, Ho’s focus is to concentrate on promoting the goodness of the agar tree. One active way is in educating visitors of its huge potential. There is a lookout point where they can catch a breathtaking view of the entire plantation of agar trees and rest stops for hikers where passion fruit plants provide shade as they watch workers go about marking boundaries to indicate the kind of follow-up care required. At present, the visitors’ centre is the main sales arm for agar tree products and Ho has become a celebrity of sorts. Taking position as right hand man in this long-term venture is his son, Nicklaus, 34, a University Nottingham graduate who promotes his father’s dream at agricultural expositions. Continue reading
Emerging Market Investors Hide Out in ‘Korexico’
http://www.ft.com/cms/s/0/7bb3efaa-1c85-11e3-a8a3-00144feab7de.html#ixzz2f3XJ2xx3 By Paul J Davies Markets are awash with buzzwords. Ever since Brics was coined we have recoiled from PIIGS, grappled with Chimerica and been sceptical about both Abenomics and Liconomics. So here is an aide memoire for where to invest when the US Federal Reserve threatens to taper its ultra-loose monetary policy and emerging markets sag with a draining of vital liquidity. When the markets correct, go “Korexico”. South Korea and Mexico have been two of the best defensive stories around in emerging markets in recent months for a handful of simple reasons: their exports are geared towards a US recovery, they did not suck in the hot money unleashed by central banks and they have not seen credit booms in the past two years. Stock markets in both countries suffered with the rest after Fed chairman Ben Bernanke first talked of “tapering” on May 22. However, they did not fall as far and they recovered more strongly. Stocks in Brazil, Indonesia, Thailand, and the Philippines fell deeply into late June and have not enjoyed a big bounce from the recent weaker US economic data that may have put off the end of “quantitative easing”. Korea’s Kospi index fell 11 per cent at worst by the last week of June and is now back to where it was in late May. Mexico did not even drop that far, losing only about 6 per cent at most. Now it is up 1.5 per cent. The other four were down between 15 and 24 per cent at worst. Brazil’s Bovespa is still 5.5 per cent lower since late May, while Bangkok’s SET, Jakarta’s JCI and the PCOMP in Manila are all down about 17 per cent. Part of the story is in fund flows. Both Korea and Mexico suffered outflows from equity markets at first, but not for long. Mexican markets saw almost $4bn of foreign cash leave stock markets in June, but more than $2bn return in July and August. In Korea, where data are published daily, inflows of more than $7bn since the end of June have more than replaced the outflows of $6.6bn during June. What is more, according to Freya Beamish at Lombard Street Research in Hong Kong, money that came out of Korean equities did not leave the country. “When the taper hysteria first hit, foreigners pulled out of Korean equities in the same way as they did across Asia,” she says. “But they went into Korean bonds. Then when the taper concerns eased foreigners went back into equities.” So what has kept these markets attractive and is the defensive story justified? Both have avoided the hot money problem of other emerging markets to a great degree. On the credit side, bank lending to GDP in Korea may look high at 86.5 per cent, but it is lower than many Asian neighbours and has declined a few points since 2009. Other Asian markets have seen explosive credit growth. In Mexico, the ratio has barely moved, remaining at about 20 per cent of GDP. Their stock markets attracted less hot cash, too, especially compared with the dizzying highs reached by the Philippines, Thailand and Indonesia. Korea and Mexico are both exposed to a US recovery via exports. More than two-thirds of Mexico’s exports head north across the border, but only about 10 per cent of Korea’s go to the US. But while Korea is much more dependent on China in general for exports, its key industries of electronics and cars are more influenced by US buying than Chinese. A boon for Korea has been Japan. The yen’s recent depreciation was meant to hit Korea’s competitiveness – but that has not happened. Oddly, a boon for Korea has been Japan. The yen’s recent depreciation was meant to hit Korea’s competitiveness – but that has not happened. “At the corporate level, there had been a concern about renewed competition from Japan benefiting from a weaker yen, but Japanese companies have focused on restoring profitability not boosting sales,” says Jeff Shen, head of emerging markets at BlackRock. But it is not entirely rosy. For a start, first-half earnings were a big disappointment. According to Citigroup, almost half of Korean companies missed analyst estimates and less than 20 per cent beat them – the worst in Asia. In Mexico, again half of companies missed forecasts, but fewer than one-in-ten beat them, the worst in Latin America. In Korea, investors were not expecting great things. The Kospi trades on 8-times forward earnings, one of the cheapest in Asia and below its average over the past 10 years, according to JPMorgan. Mexico, however, is one of the most expensive markets in the world on 17 times forward earnings, a good way above its average. This could well prove a dangerous place to be. For both countries, a sustained US recovery is what will really help – and that is far from certain. Their key attraction in the months ahead is more likely to be as a short-term haven from bouts of taper-hysteria in other emerging markets. Korexico is less a destination than a hide-out. paul.j.davies@ft.com Continue reading
