When Jim Rogers talks, investors listen. One of the world's most famous investors, Rogers is known for his no-nonsense style and investment wisdom. He is author of several best-selling books, including his latest, "Street Smarts: Adventures on the Road and in the Markets." ETF.com recently sat down with Rogers for his take on the recent plunge in commodities. This is part 2 of our interview with Rogers; read part I: Jim Rogers: I Bought China ETFs After The Panic.
ETF.com: One area that you're very familiar with and that's been all over the headlines is the commodity market. What's going on with these precipitously falling prices?
Jim Rogers: Part of it is coming from China. A lot of Chinese investors ,borrowed money against commodity inventories. Then as the stock market crashed and investors got margin calls, they had to sell their commodities because there was nothing else they could sell to pay the loans.
China has built up debt in the last six or seven years, which is a new phenomenon in China. There was very little debt before. The last time we had economic problems in the world, back in 2008, China was not affected very much because there was very little debt in China. This time around, there's a lot of internal debt in China that has built up, and so we're seeing the consequences of that.
I'm afraid the next time we do have an economic problem in the world, China's going to be more affected than it was last time.
So that's one reason commodities have been down recently. The other reason is you had this geopolitical event. America was negotiating with Iran last year over its nuclear program. America went to Saudi Arabia and told them to dump oil to put pressure on Iran and the Russians. Saudi Arabia was happy to do it because they also wanted to slow down fracking in the U.S.
You had this artificial geopolitical event, which drove the price in oil down. If you get out the charts, you can see the drop almost exactly coincided with American negotiations with Iran.
The way most markets work is once you have a big collapse in something and it hits a low, there's a second test of the lows. Right now you're getting that second test in oil. I suspect that it will pass the test, or at the worst, maybe make a minor new low.
The world has been using more oil than it discovers for the past several years. Worldwide reserves are in decline, except for fracking, of course. This downturn will be temporary, in my view.
ETF.com: What are your thoughts on gold?
Rogers: I have been on record as explaining that I would not be buying gold. I own some gold, but I've hedged my positions. My view of gold is that there's going to be an opportunity to buy at better prices in the next year or two. I hope I'm smart enough to take advantage of that opportunity if it happens.
ETF.com: What commodity sector would you go bargain hunting in?
Rogers: I would not buy oil. It's pretty clear to me that oil is going to go down to test the previous lows, and it might even go under a little bit to scare people. I wouldn't buy gold either. I'd rather buy agriculture if I were buying commodities at this stage.
ETF.com: You've been through these commodity cycles many, many times over the decades. It usually takes a while for things to turn around, isn't that right?
Rogers: That's been my experience, yes. But when they do, there's lots of money to be made.