iTulip's Eric Janszen interviews Asia investing and commodities guru Jim Rogers
April 3, 2007
Note: A feature of iTulip Select is to solicit questions from subscribers to ask upcoming interviewees. The majority of questions asked of Jim Rogers in this interview were previously suggested by the subscribers before the interview was conducted.
Jim Rogers was previously interviewed by iTulip May 2006.
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Q: Welcome to iTulip, again, Jim. Good to have you back.
A: Good to be here.
Q: You are bearish on the US housing market, and are reportedly selling your house and moving to China.
A: Yes, but two are not cause and effect. I'm bearish on housing in the bubble areas like Arizona, Florida, Nevada–you guys certainly know where they are. But that's not why I'm selling my house. I'm selling my house because I'm moving to Asia. That move has been in the works for some time. Housing prices continue to rise in NY, surprisingly enough. There was an article on the front page of the NY Times today showing that housing has remained strong in New York.
Q: Housing price strength is strongly correlated to employment and incomes. Are flush Wall Street salaries and bonuses fueling the continued rise in NY?
A: Housing prices are related to employment and incomes worldwide but that's not the whole story. Employment is still strong in Arizona and Nevada, yet housing prices are falling. The problem is that whenever you have a bubble, it has to pop and everyone gets hurt. Prices have to fall more than they would if there was no bubble because they went up more than they should have.
Q: How long does this US housing downturn last? The consensus of economists is that the correction is largely over.
A: It has a good long way to go because never before in American history have so many people be able to buy houses with no money down. Even during the 1920s when the banks first tried interest only mortgages borrowers at least had to put some money down. This time a lot of borrowers have put no money down on interest only mortgages. The results will be much worse.
Q: Do you see a slowdown or an outright recession in the US economy?
A: I see a recession, and for a variety of reasons. Automobiles are in recession. Housing is in recession. There's been an inverted yield curve for a while. You have a slowdown in business spending. The subprime mortgage and junk bond markets are a disaster happening or waiting to happen in the financial area. There are plenty of things going on. Plus we've had recessions every four to eight years since the beginning of time, so there's nothing unusual about the fact that we're about to have another one.
Q: Will this US recession be as much of a drag on other economies around the world, such as in Europe and Asia, in this recession as previous recessions?
A: Europe will be affected to some extent. They will again this time. Europe is in better shape than the US because it hasn't seen the same excesses, such as in housing. Asia too will be effected to some extent, but Asia is more and more a self-contained economic entity. There are three billion people in Asia and they are a lot less reliant on the US than they used to be. Of course the whole world will be affected when the largest economy in the world goes into recession, but it will not have as dramatic an impact as it used to. This will be a US-centric recession, major for the US but not so major for Europe and Asia.
Q: One statistic we are aware of is that over the past five years China has come to import more from Asia than the US imports from Asia. Do you see that development as significant in the next recession?
A: Absolutely. Here's another statistic. Thirty years ago Japan did 45% of its trade with the US, 25% with Asia, the balance with Europe and the rest of the world. Now Japan does 25% of its trade with the US and 45% with Asia.
Q: So no global recession?
A: No. The US will be hit the hardest and other economies in varying degrees.
The interview continues on the topics of the benefits of doing business with China if you are an African or South American nation, what China will be buying with US treasury bonds, implications of the shifting balance of trade between China and the US versus China and the rest of Asia, what to do if a trade war develops out of the US-centric recession, whose side China and Russia may take if the Middle East develops into larger conflict, and more.
Interview Continued for iTulip Select subscribers here.
See Jim Rogers' book: Hot Commodities: How Anyone Can Invest Profitably in the World's Best Market
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