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 the author of several best-selling books, such as “Hot Commodities” and "Street Smarts: Adventures on the Road and in the Markets." ETF.com recently spoke with Rogers about the latest financial market developments, including why he sees a big downturn taking shape in the next year or two.
ETF.com: You recently said you see the worst stock market correction of your lifetime coming next year. What’s going to cause that?
Jim Rogers: I can give you lots of possibilities. These things always start small and with nobody noticing.
For instance, in 2007, Iceland went bankrupt when most people didn't know there was an Iceland, much less that it could go bankrupt. And then the next thing you knew, Bear Stearns collapsed; and then Lehman Brothers collapsed. Finally, everybody said, “Oh, there's a problem.”
That happened slowly over a year. That's probably what's going to happen this time. It may have already started. There are companies going bankrupt in China. The whole banking system in Latvia collapsed recently.
Who knows what will cause it? I don't. Rising interest rates, trade wars, real wars— many things could cause it. But it will be gradual. The worst collapse in my lifetime doesn't happen in a day. It will evolve over a year or two.
ETF.com: Why do you think the next downturn will be so extreme?
Rogers: Historically, we’ve always had economic setbacks and bear markets. In 2008, we had a problem because of too much debt worldwide. Since then, the amount of debt has skyrocketed everywhere in the world. Why would people think the next collapse—whenever it comes—won’t be worse than the last one?
ETF.com: How much confidence do you have in your forecast?
Rogers: I have enormous confidence. When the bear market comes, it has to be the worst in my lifetime, because the debt is much, much higher than it's ever been in history.
Plus, there are dramatic changes taking place. Retail shops are liquidating all over the U.S. Somebody is going to be left holding a very big bag eventually as those stores go out of business. Many pension plans are under water. The state of Illinois, Connecticut and several others are essentially bankrupt now. There are many things that are going to be very, very serious going forward.
ETF.com: How do you think investors should position themselves ahead of the downturn?
Rogers: You should only invest in things that you, yourself, know about. The worst mistake is being invested in something you don't really know about, because when things start going wrong, you really get whipsawed and get hurt.
If you know a lot about investing, you might sell short, you might buy agriculture, or you might buy some countries that will not suffer so badly. There are ways to get through this.
ETF.com: What agricultural commodities and countries will best weather the storm?
Rogers: I would look at the ones that are the most depressed; something like sugar is probably going to come through OK just because it's so beaten up. It's down dramatically, more than 70% from its highs, so something like is probably going to do OK.
Russia will probably be fine, compared to most of the world, in the next bear market. Venezuela will probably do OK, only because it's been a total disaster. Same thing with Colombia.
ETF.com: It sounds like you're suggesting the cheapest and most depressed countries are the place to be.
Rogers: Didn't your mother teach you to buy low and sell high? Yes, that's what I'm saying.
ETF.com: How do you think traditional safe havens like Treasuries and gold will fare?
Rogers: The Treasury market bottomed in 1981 and has been going up ever since, until the last year or two. In other words, we had a 36-year bull market in Treasuries that’s coming to an end or may have already ended.
I wouldn't want to put money in U.S. Treasuries, because in the past America has had multidecade bull markets and multidecade bear markets. I suspect we're now in a multidecade bear market for Treasuries.
ETF.com: Won’t Treasuries rally if the economy and markets enter a big downturn?
Maybe in the short term. I own a lot of U.S. dollars, but not because the U.S. dollar is sound—it's one of the most flawed currencies in the world. But when times of turmoil come, people look for a safe haven, and many people think the U.S. dollar is a safe haven for historic and comparative reasons.
Nobody's going to buy the euro or the pound sterling, so the U.S. dollar is probably a place to be for a while.
ETF.com: What about gold? A lot of people run into gold when the market sells off.
Rogers: I own gold, but I haven’t bought any in quite a while. If you look back at previous bear markets, usually gold gets swept up in the bear market. It has a big drop, and then it's a great buy.
My plan—if I get it right—is when the U.S. dollar goes up and gets overpriced, gold will go down, so I’ll just switch my U.S. dollars into gold.
ETF.com: Do you own any ETFs?
Rogers: I own ETFs, including on China, Vietnam, Korea and Indonesia. ETFs are good for lazy people like me.
By the way, they’re going to make the next bear market worse because since we all own ETFs, we all own the same things—the same shares, bonds, commodities, etc. When we liquidate, the liquidation in those is going to be dramatic and painful.