Jim Rogers Creates Commodities Index for ETF; Sounds Off on Economy
July 10th 2008 at 6:00am by Tom Lydon
Investing legend Jim Rogers has put together a new index targeting commodity producers, which will soon underly an exchange traded fund (ETF).
The Rogers Van Eck Hard Assets Producers Index (RVEI) gives investors a chance to ride the commodities bull by accessing a universe of producers from all over the world. Most of the index’s components are producers of raw materials for agriculture, alternative energy, base and industrial metals, energy, forest products and precious metals.
“From what I can see, there is not another index like it,” he told us. “There are no indexes that are specifically targeted at stocks that are major producers of commodities.” The others, he says, are primarily made up of American and Australian companies.
His new index is a global one made up of 39 countries, meant to truly capture the global commodities boom, because countries such as the United States and Canada aren’t the only major producers. The United States is 35.8% of the fund and Canada is 12%. Britain is 5.9%, Russia is 5.1%, China is 4.8% and Brazil is 4.1%. Another 33 countries make up the remaining 32%.
“The whole world is represented, and most countries produce one or two commodities,” Rogers says.
The inspiration for the index came from conversations Rogers continually was having with people who would tell him they couldn’t bring themselves to invest in commodities.
“Until they change their views or the world changes, we decided we should be able to offer them a choice. I won’t get into who’s right and who’s wrong.”
Up, Up and Away
High commodity prices could be here to stay, he says, although he points out that there have been corrections. Since the current oil boom began in 1999, the prices have gone down 40% to 50% three times. “Everything can go down and correct, but that’s not going to be the end of the bull market,” Rogers says.
He points out, too, that any number of catastrophic events can emerge from out of the blue to send prices down sharply, but that the bull market isn’t over until someone discovers more energy in areas that are accessible.
As for blaming speculators? Hogwash.
“Whenever there’s supply and demand, the money goes there, whether it’s stocks, bonds or currency,” Rogers says. Eliminating speculation would simply eliminate all investment and eventually just drive it overseas.
He also points out that in the 1990s, the fundamentals in commodities were negative, and it kept investors out. When fundamentals shift to the positive, they come in and prices go up. “They wouldn’t go higher if the fundamentals weren’t positive.”
Staying Out of It
Roger cautions against ignoring economists’ warnings, citing the 1930 Hawley-Smoot Tariff Act as a prime example of the dire consequences of doing so. In the United States, more than 1,000 economists signed a petition against the legislation that would raise tariffs on imported goods to record levels.
The law passed anyway, and many countries retaliated with their own tariffs. Exports and imports plunged by more than half. Many now blame the act as a major cause of the severity of the Great Depression.
The moral of the story? Don’t ignore the economists. They know what they’re talking about. Unfortunately, Rogers says, “Even if the economists say it’s wrong, the politicians will do it anyway.”
As a result, “a lot of what’s going on is because of the American government. They may wind up eliminating investment in America.”
The best approach to an ailing economy is a hands-off one, because if the government steps in and starts regulating, the effect will only be a temporary one that would eventually create an even bigger bull market.
“If you drive down the price of rice, farmers just won’t produce more rice, because it’s too cheap. Supply and demand will be worse than it is now,” Roger says.
He doesn’t foresee that things will improve with the next presidential administration, either.
“Neither of the candidates understands the dire straits the world is in,” he says. “No matter who wins, we’ll be worse off, unless you happen to be friends with or in cahoots with those who win.”
Living in Asia
Rogers left New York and moved his family to Singapore last year, based on his belief that Asia has a strong future ahead of it. He says Americans and the rest of the world need to let go of how they view some countries there – for example, a Vietnam ravaged by war or an India ruined by Indira Ghandi.
“That’s not Asia anymore,” he says.
He believes so much in the changes Asia is going through and the work ethic and dedication of its population that he’s raising his daughters to speak Mandarin Chinese, because he wants them to be prepared for life in the 21st century. Being there to witness these changes has only affirmed his view.
Rogers is known for making some bold predictions that have come to pass, including sounding the alarm a few years ago that America was headed for a recession. He’s got some predictions this time around, too, but it’s a just little good news and mostly bad news, at least in the short-term.
The good news? “No bull is indefinite.”
However… “The recession will probably last longer because the Central Bank is making big mistakes. I can’t believe how stupid they are.”
“I’m not terribly optimistic that it’s going to end anytime soon. We’ll have problems for awhile.”
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.