(This post previously appeared at Wall Street Cheat Sheet)
Jim Rogers is one of the best global investors of all-time. Last time we chatted a couple months ago he was sleeping soundly with his investments in commodities. I caught up with him to get some high level perspective on the current issues unfolding in the European Union …
Damien Hoffman: Jim, Do you think the EU will survive economically and/or politically through this entire debacle?
Jim: Well I’m long the Euro because I expect them to come through this one OK. Either Greece is going to be papered over and they’ll give a blast to the Euro, or they’re going to let Greece go bankrupt. In my view, this is what they should do because then people would say, “Wow. They’re serious about sound economies in Europe.” That would make the Euro very strong. Then people would know they are not just going to print money or paper over failure.
Either way, I think there’s probably a rally coming. There’s a huge short position in the Euro and whenever there’s been a huge short position in anything, it’s sometimes profitable to go to the other side. So, I am long the Euro because I think there are too many pessimists.
Maybe Greece will go bankrupt and the Euro will collapse before people realise, “That’s good … that’s not bad.” Sometimes it takes a lot for perception to become reality or reality become perception.
Damien: What other countries are you monitoring to make sure the situation isn’t going to spread or get out of control?
Jim: I’m trying to watch the whole world. We cannot be very successful investors if we don’t know what’s going on everywhere. All of a sudden you’ll something like Iceland will show up and you’ll get killed because you didn’t know that Iceland even existed. Usually these things come out of the blue from some place we’re not thinking of.
Damien: Do you think Greece will be the first to tumble?
Jim: I would suspect that the U.K. is more likely to suffer before Greece, but who knows. Maybe it’s time for all of them to collapse and come down together.
Damien: Speaking of collapsing together, do you think the creditor-consumer model — as used by the Chinese with the US and the Germans with the Greeks — has been proven unstable and countries should be moving more passionately towards developing organic manufacturing and consumption economies at home?
Jim: The idea of economies built on consumerism has been discredited many times. The last 10 or 20 years people have been shouting, “Oh gosh! Thank goodness for the American consumer.” However, no economy has ever been built on consumption for the long term.
The only way you build an economy is through savings and investments. Look at Dubai. The basic economic model in Dubai was to build an economy based on real estate speculation. That cannot work. You’ve got to have savings, investing, and productive capacity.
It’s all wonderful if we can go to the disco every Saturday night or go drinking by paying our bills with transfer payments. But that doesn’t do anything for long term productivity or competitiveness. Also, guys who build tanks have fun building the tank, but that tank then goes out in the sun or rain to rust. It doesn’t do anything for future productivity. The only way to build an economy long term is to save and invest while building infrastructure and productivity. Nothing else has ever worked.
Damien: Which countries are doing things correctly?
Jim: There are some doing better than others. The largest creditor nations in the world now are China, Korea, Japan, Taiwan, Hong Kong, and Singapore. That’s where the assets are. There are hundreds of billions of dollars in these countries because they’ve been doing something right.
You know who the largest debtor nations in the world are? I assure you they’re not in Asia. They’re in the West.
The future has always belonged to the people who’ve got the assets — the people who’ve built up savings and investing. Throughout history, we have never heard people say, “Gosh. Look over there at all those debtors. Why don’t we go over there and join those debtors?”
Instead, throughout history people have said, “Look over there where all the assets are.” People have always said they want to go where the assets are, not where the debts are. That’s what happened in America etc., and that’s what’s going to happen in the future as well.
Damien: Jim, thank you very much for updating us on your view.
Jim: You’re welcome.