Jim Rogers,
Marc Faber and Daniel Yergin
TRANSCRIPTION
OF RIVERSIDE CONVERSATIONS
©
2003 VPRO All rights reserved. George Brugmans, Producer
Editor's Note: We have edited the interview in this transcription for clarity and readability. The original webcast interview may be heard on the Dutch site, Tegenlicht. This video was produced by George Brugmans and VPRO. Visit our FSU page for directions on how to access their site and see their video. Additionally, Jim Rogers and Dr. Faber have been guest experts on Financial Sense Newshour. You might enjoy listening to their recent interviews.
JIM
ROGERS: I've got to figure
out what to do next. Now, we've had non-punitive acts in the market. What is going to happen in the next
five years? What's going to happen? How are we going to survive all
this? How are we going to
survive and how are we going to get rich?
DANIEL YERGIN: I think we all need those answers. But, I think you have just turned in your book, so in one sense, you've got to tell us.
JIM ROGERS: I am not going to make any money off my books. I assure you of that. You probably know that. You guys make money off your books. But I'm not going to get rich off my books. One could say that after the Second World War, we had the world started opening up again, globalization, GAT, WHO, everything started opening up. The Berlin Wall fell and things opened up even more. But, then the World Trade Center fell. So are we at the end of an era, or are we at the beginning of an era? What's going on?
MARC FABER: I would like to point out that people say the last two or three years were so bad, but that is not true at all. If in the last year you held cash Euros, you are up 20% against the US dollar. If you held gold since April 2001, you are up more than 40% against the US dollar. If you owned real estate in the US or the UK, the real estate prices have been firm. I think the problem is not that the markets have been bad. Bonds have done very well, government bonds have done very well. It was that people were ill-positioned, because they bought the wrong thing at the wrong time.
JIM ROGERS: I couldn’t agree more. But what do we do now? I have to do something now. I own gold and I own some real estate. Look around you.
DANIEL YERGIN: The thing is do you want to start with the investment thesis or should we start with the big picture?
JIM ROGERS: What is going to happen with the world? Let's start there.
MARC FABER: The world is easy.
JIM ROGERS: All right. The world. What's going to happen in the world in the next five or ten years?
MARC FABER: I think what is happening now is that the Fed is pumping money into the system, that boosts consumption in the US and it leads to a credit bubble. But the production doesn’t grow in the US. But, it grows in China and Vietnam and India and other places. We have actually a Fed policy that is designed to almost impoverish America and transfer the wealth to countries that are producing the goods that are then consumed in the United States.
DANIEL YERGIN: You do raise the one question—that gnawing question—which where you live looms large. Is China going to become the low cost source of everything?
JIM ROGERS: There is no question in my mind anyway. But, let’s just suppose, Marc, I happen to agree with you. But, let’s suppose you are right. Is the US going to sit back and let that happen or are we going to close off, are we going to become protectionists? Are we going to close our markets? Are we going to close our currency? How are we going to deal with it?
MARC FABER: I think a lot of people are concerned that the world will become protectionist again and that you will have high import duties. But actually for the US, this would be self defeating because the US has a low rate of inflation precisely because China is producing goods more cheaply than anybody else. And so they are putting pressure on the prices of manufactured products.
JIM ROGERS: Marc, you just got through saying gold is going up. All these things are going up. I have a commodity index fund, which is up 80% in the last four years. How can you say prices are going down?
MARC FABER: Well, that's the point.
JIM ROGERS: Oil is up. I mean oil has gone through the roof! Tell this man. Oil has tripled.
5:55 MARC FABER: I want to explain to you. Following the breakdown..
JIM ROGERS: It's tripled in the last four years. Since I left to go around the world, since 1998. When I left in January 1999, it's tripled.
DANIEL YERGIN: So much for stability in markets.
JIM ROGERS: If you listen to that stuff on TV, you know it's wrong.
DANIEL YERGIN: I think you are raising a bigger question, which is of course about globalization. Did something end on September 11th? Did something end with the end of the stock market bubble in this country and so forth? And I think that question hangs over everything else. I think we all know that there was the first stage of globalization—an incredibly optimistic time—50 million people moved to the United States without passports, new technologies, the Internet of the age, which was the telegraph. It was supposedly going to go on forever and it ended on June of 1914.
JIM ROGERS: August of 1914. The shooting of the Arch Duke. The question is, what do we do now? Is that happening again? Are we now going to close off again? Are we going to have a Third World War? Are we going to kill each other? Should I leave New York?
DANIEL YERGIN: Something did change. I think we can look back now with the wisdom of a couple of years of hindsight and say that the 1990s really was the second age of globalization. One of the things we grossly underestimated was the question of security and safety. There was a conceit in the United States and other countries that everybody wanted to be just like everyone else. We discovered that's not true. Are computers slower? Is the internet going to disappear? I don’t think so. But it it going to be a relatively well functioning world, which is what you are asking. Or is it going to be a fragmented world. Are we going to see states and governments more powerful because of the security questions? I think these are the open questions that you can only approach through scenarios.
JIM ROGERS: Do you think there is any chance that the US would change its policy and stop making so many enemies? One of the reasons this is happening is because the US has made many mistakes in the last ten years. We have troops in Saudi Arabia, the holiest land of Islam. We've got Christian troops there. When I drove through Saudi Arabia, everyone kept saying to me, “Suppose we had Muslim troops in Rome? How would you feel?” A lot of people are angry about that. You know our policy in Pakistan. We were bitter enemies with Pakistan until September 12, 2001. Now, they are suddenly our friends. There is Anti-Americanism all over Pakistan.
DANIEL YERGIN: Are you kind of saying it is kind of America's fault?
JIM ROGERS: No, I am not saying it is America’s fault, but so far after September 11th, we in America said we need justice, swift justice. I couldn’t agree more with that. I suspect you would both agree. We need swift justice. But at the same time, I would have thought somebody would have said, "Well let's see if we're doing something wrong?" Maybe we need to re-examine our policy to see if at the same time we are having swift justice, we can also examine our policies. I haven't read or seen any of that.
DANIEL YERGIN: I think one of the things that in a sense, we thought that all the security issues would take care of themselves and all we needed really needed to do was open up markets and open up trade, get an integrated world and everything would work well. The standards of living would be raised and of course we found that is not the case.
JIM ROGERS: But what happens now? Does America close off? Marc, you said we are going to debase the dollar. We are going to drive the dollar down. If we drive the dollar down, doesn’t that make the US economy much more competitive and much more vibrant?
MARC FABER: Not necessarily. Countries that have a weak currency usually don’t gain much in terms of competitiveness. By the way, the US dollar would have to decline by say 80% against the Chinese RMB to be competitive. That is unlikely to happen. But I think that the wiser issue is why the US is not particularly popular? Because they have this belief that they are kind of a new empire in the world, the way the Romans were and empire. Nobody likes an empire, because empires have always bullied people around. I mean, the Romans crucified people. A good example, they crucified Jesus Christ because they didn't like him and because he was considered a rebel.
10:17 DANIEL YERGIN: So, we will stop buying goods from Asia. We'll stop buying goods from other parts of the world. What is this American empire? Isn’t part of the reason they don’t like the United States is because the United States did very well in the 1990s and people how weren't doing so well resent it?
MARC FABER: I know countries such as Cambodia and Laos that have been carpet bombed, that didn’t particularly enjoy the carpet bombing as an example.
JIM ROGERS: But what does that say about the future? That is the past. You're right; we made a lot of enemies. But how can you say in the 1990s, we did well? We had the largest balance trade deficit that the world has ever seen in the '90s. We are the largest debtor nation in the world by a factor of many, many times.
DANIEL YERGIN: How can we do well compared to the Europeans who created no jobs? We created 20 million jobs in the 1990s. They were not hamburger flippers as people said they would be in the beginning of the decade. They turned out to be service jobs. They turned out to be better people and what have you. Also, we have absorbed populations. Many people don’t like the US, but they sure want to move to the United States and live here.
MARC FABER: That is correct. That I agree with you. Nobody likes the US, but everybody gives everything to get to the US and start...
DANIEL YERGIN: I heard a statistic. I wonder if it is true, that 44% of the people who live in New York City were not born in the United States.
JIM ROGERS: I think that is probably true. Yes, in greater New York, that is probably very true. A lot of people want to keep coming here—there is no question that a lot of people want to come to the US. But, is that going to continue? Are we going to let them in? Are we going to let them in for the next ten years or are we going to close off again? Remember in the 1920s, we closed off. In the '30s, we closed off.
DANIEL YERGIN: We had this incredible year of globalization and it took until after World War II e to begin laying the institutions to restore it. Things can not merely go wrong, but they can go very wrong.
JIM ROGERS: That is why we had after the Second World War. We are not going to have beggar thy neighbor anymore. We are not going to close off the borders. We are not going to close the markets. We are going to have GAT. We're are going to have WHO. Will that continue is my worry.
DANIEL YERGIN: What do you think? You have asked the question so many times, I think you have a point of view.
JIM ROGERS: No! No! I want answers. I need answers! Because, if I don’t get answers, then I can't afford this home.
DANIEL YERGIN: What is your point of view?
JIM ROGERS: I am afraid that we in the US, that Marc is exactly right, that we are going to drive the currency down. We are going to debase the currency. There is no question about that.
DANIEL YERGIN: As a conscious policy?
JIM ROGERS: Yes, absolutely.
MARC FABER: That has been spelled out by the Fed.
JIM ROGERS: Yes. The Federal Reserve. The Chairmen of the Federal Reserve and the new governor have said, "We are going to print money. We are going to drive prices up." Remember when he said that, “If you don’t believe that, we've got printing presses, and we can…”
DANIEL YERGIN: Do you see that as a response to the specter of deflation?
JIM ROGERS: Whatever it is, it is going to happen. I don’t care what's the response. It is going to happen. I am trying to figure out what to do next. So, we know the US is going to go down. You [Marc] seems to think it's going to go down.
MARC FABER: The question is against what? Against the Yen? Not very likely.
JIM ROGERS: I own the Yen. I own the Euro. I own the Singapore dollar. I own the Australian. I own a lot of currencies. But I don't like any of them.
MARC FABER: That is because you are a rich, young man. But there are people of more modest means, who may only have a choice of one currency. So I look at it this way. We have in the world four major currencies. The Dollar, Euro, Yen, paper money and one hard currency: Gold. And then we have one more future major currency. It is the Chinese RMB. The Chinese RMB is the soundest currency in the world in terms of paper money. Gold is the only currency where the supply cannot be increased indefinitely. In other words, it cannot be monetized.
DANIEL YERGIN: Why is the RMB the strongest currency? Because of the reserves they hold?
MARC FABER: It is the soundest economy in the world at the present time. Last year, the Americans print money. Industrial production here is flat to down. No investment activity. But in China, industrial production is up 19%.
DANIEL YERGIN: Do you see China just marching along 8% growth a year? No bumps in the road?
MARC FABER: In America, between 1800 and 1915, there was tremendous growth in the country. They had industrialization. They had 15 financial crises and the Civil War and yet you had progress. For sure in China, you will have crisis. That is within the next five years, you will have political and economic crises, but the trend is towards a very strong China economically and politically.
DANIEL YERGIN: What do you think the political crisis will look like?
MARC FABER: I think it will come via the financial system. And when the whole thing collapses, then people will say or point their fingers at some government officials.
JIM ROGERS: You mean the banking system?
MARC FABER: The banking system, and the state and the price system. And then, the entrepreneurial class, which is now rising—the ones that have no connections with the government—they will take over at that stage. Then you will have a better kind of government, in terms of more rules and regulations rather than just administration by the wills and whims of some leading politicians at the present time.
JIM ROGERS: If I can make an analogy. If you were born in New York in 1903, in 1907 there was a huge financial panic. You would have been brilliant to buy that financial panic. Marc is right. In 2007, there is going to be a financial panic in China. I for one, am going to be buying it. I happen to own the RMB. But, you ask why is it so sound? They have a balance of trade surplus, a huge balance of trade surplus. We in the US have a huge deficit. They have the second largest foreign currency reserves in the world. We are the largest debtor nation the world has ever seen. I cannot get enthusiastic about putting money into the US. I would love to. I live here. I love the US, but I've got to be realistic. I can go broke out of patriotism, but I'd just as soon not.
16:42 MARC FABER: I would like to add one more point. In China, every year they have 500,000 engineers coming out of technical schools and universities. The same number comes out of schools in India. These people have very low salaries. They frequently don’t come from established families. They are prepared to work 100 to 200 hundred hours a week to make it up because the competition is so stiff. These are people that don’t go skiing over the weekend or boating in the summertime. They work every day of the week. And I have to say that I was never very optimistic about Internet stocks, but I think the Internet allows every citizen anywhere in the world to acquire the knowledge of people like yourself in the lost village of the country. There is a tremendous knowledge transfer. I think that people who say, "We in America and Western Europe, we have the knowledge and the know-how, and so forth." Well, actually these people, the Indians and the Chinese will acquire that very quickly and in five years time, you will see the big thing will be research labs in China and India. To carry out research in these countries is maybe 10% of what it costs here in the US and in Western Europe.
JIM ROGERS: Marc is dead right about China. You can go across China on the best highways in the world and you will find people who work from dawn till dusk in China. Everybody. They save and invest. They save 30 or 40% of their income. India is dead wrong on all of that. They have the worst highway system in the world. Drive it! Drive it! They have the worst telephone system. They may have a few people, but they all leave.
MARC FABER: Actually, I have to correct you. Haiti has the worst road system in the world. But, India is close behind it.
DANIEL YERGIN: India looms a little larger in population.
JIM ROGERS: Let’s not get off on that. Before we get off of India, let's keep going this way. But will world terrorism destroy this whole, what we are talking about? Will terrorism end? Will it just make the closing off of countries even worse?
MARC FABER: Actually, we have to analyze what are the causes of terrorism. Terrorism is the symptom of a world where you have a lot of people that have nothing to lose. Basically this is one of the problems of globalization. The problem existed before that. You have a lot of people that have been disenfranchised and a relatively small number of people, the multi-nationals, did relatively well in the 1990s. People that have nothing to lose—of course they are more likely to be suicide candidates for terrorism.
DANIEL YERGIN: Look at your own part of the world. Look at Asia in the beginning of the 1990s and the end of the 1990s even after the Asian financial crisis, certainly people’s standard of living has increased. Singapore’s per capita income or standard of living is higher than Britain's. Britain had a 200-year headstart. There is this one part of the world, the Middle East, that in a sense has not been a part of this process and some people would say it has to do with the nature of the governments.
MARC FABER: I would have to tell you, even Asia. If you look at US dollar per capita incomes, today it is lower in Indonesia than it was in 1990 and in Thailand, it is practically the same. It is true that some countries like Singapore, and Taiwan and South Korea have had progress somewhat in the 1990s, but often, they haven't.
DANIEL YERGIN: Indonesia is a big problem.
MARC FABER: I would say even in India because of currency depreciation, today’s GDP per-capita is no higher than ten years ago. But I take the point that in general there has been some progress in the 1990s in emerging economies particularly in Asia and specifically of course in China. If you compare China in 1990 and today, it is like day and night. Same for Vietnam.
JIM ROGERS: But will terrorism come to an end? You said there is this hopeless class out there. Are we going to have terrorism, low grade terrorism?
20:59 MARC FABER: The system is going to attack us where we are vulnerable. They are not going to attack us in the air. They are going to attack us with our weapons, or with biological weapons, or make life difficult through attacks, hackers of computers and so forth.
JIM ROGERS: So you think it is going to get worse?
MARC FABER: Of course it will get worse, much worse over time.
DANIEL YERGIN: So, where does it end?
MARC FABER: It will end. We have to try to understand the other countries better than we do now at the present time and be more lenient to them.
JIM ROGERS: That's what I am trying to figure out. You are saying terrorism is going to get worse?
MARC FABER: Yes, continue.
JIM ROGERS: You think it is going to continue?
DANIEL YERGIN: Some think it is going to be a half a generation battle?
JIM ROGERS: That is a long time. Those are the years I am worried about. So what do I do? You all seem to agree. I happen to agree with Marc. That maybe there are ways to stop it, but the US is not going to change its policy. So it is going to get worse.
DANIEL YERGIN: I just think The US is a little over done. It's very typical. I was in Davos and it was all I heard, "It's all the US' fault. Really. There's a bigger world.
JIM ROGERS: What I said was it is not going to change—right or wrong—it is not going to change. For the purpose of this discussion—I am not making a value judgment. I am saying it is not going to change, that is for better or for worst—So, what's going to happen? I am having a daughter in May. My first child. Where should I take her to rear her? Should I rear her in the US or should I rear her somewhere else?
MARC FABER: New Zealand.
JIM ROGERS: Boring. I have money in New Zealand, but I am not sure I want to be in New Zealand.
MARC FABER: I agree, but in general it depends on what is your ambition. Is the education of your daughter to make money for her in the future and to be in a thriving country, then I would take her probably to Asia.
JIM ROGERS: Well, but that is why I asked both of you. You both said that terrorism is going to continue. I happen to concur. I don’t see a change—for better or for worse. But, do I want to sit here in New York? Do I want to sit in London? Do I want to sit in Boston? The US dollar is going to go down.
22:53 MARC FABER: Yes.
JIM ROGERS: Do you happen to agree?
DANIEL YERGIN: I am here in the presence of experts. I will defer to you all.
MARC FABER: Ha! Experts!
JIM ROGERS: Is the price of oil going higher?
DANIEL YERGIN: I think, in the near-term. I think once we are through these crises, they'll come down again.
MARC FABER: I think the price of oil will go up long-term.
JIM ROGERS: I do too. That is not a surprise. To me, the surprise will be how strong the price of oil stays. But, you are the expert on oil. The reason I ask that is we all agree that the dollar is going to go down against oil. At least for a while, at least for the short-term. The dollar is going to go down. How do you see the US in this scenario we are talking about? The US economy? The US currency? The US everything?
DANIEL YERGIN: Beyond what the Fed does or doesn’t do, you can certainly feel that malaise in terms of confidence that translates into not investing, people just holding back, animal spirits checked. You know better than I. Aren’t we still going to spend some time digging out of the rubble of this bubble?
JIM ROGERS: Ok, so that would sound to me like, with the terrorism that is going to continue—says you - says all of us—the US is not the place to be. We, so far, we all seem to think Asia. But we all have different ideas of Asia.
DANIEL YERGIN: I don't hear either of you say "Japan."
JIM ROGERS: In a minute I will say "Japan." I'm not bullish on Japan. I am not the least bit bullish of India, but I am wildly bullish on Shanghai and China. I may move to Shanghai. I am that bullish. Japan? He brings up a good question, is Japan part of Asia?
MARC FABER: It is part of Asia.
JIM ROGERS: I've got a globe too, but as far as this new world…
MARC FABER: I think something very interesting is happening. For as long as China was closed, the other Asian exporting countries had little competition and the other economies compared to China were a little bit small. Starting in 1978, China opens up and nothing much happened until the late 1980s. But after that, the Chinese were really becoming major competitors to the other exporting countries. I think now what you have in Taiwan, South Korea and Japan, is companies closing down production in these countries and moving their production to China. So, macro-economically, each time a company closes down in Japan and moves to China, it is negative for the economy of Japan, but it is positive for the corporate profits of that corporation because they can shift that production to a lower cost country.
And I think you may find that for the next ten years, there is no Japanese economic growth. Macro-economically, the country looks horrible, but that the stock market will go up. It is one of the few stock markets that has a higher dividend yield than the bond yield and where the ownership of equities is very minimal compared to Western Europe and especially to the US. So, I think money can shift out of bonds into equities. Bonds go down and equities go up.
JIM ROGERS: I happen to own Japanese shares too. In Japan right now, there is despondency. The suicide rate is the highest in history. The birthrate is the lowest in history. University graduates want to go to work for the government. There is despondency everywhere. That's the kind of place where you are supposed to invest. It doesn't mean I won’t lose a lot of money or Marc too. I am more optimistic on the Yen than he is, because of the dollar.
DANIEL YERGIN: But you don’t see some grand Japanese crisis?
JIM ROGERS: There has been a grand Japanese crisis.
MARC FABER: There is a crisis at the present time and in fact I think it will become worse.
DANIEL YERGIN: That would effect the world economy or is Japan too turned into itself?
26:03 JIM ROGERS: And even if it does have a crisis, it will make the crisis in the US even worse because they are our creditor.
MARC FABER: Yes, exactly. Yes. That is the point.
JIM ROGERS: A crisis in Japan—a semi-crisis in Japan—is a crisis in the US.
DANIEL YERGIN: So, what are you going to do when Mr. Greenspan's term comes to an end and they make you the head of the Federal Reserve?
JIM ROGERS: Oh, not that! Are you kidding? I wouldn't take that job.
DANIEL YERGIN: Tell us what you would do when you think about it for an hour.
JIM ROGERS: I would drive interest rates higher as fast as I could,
MARC FABER: Yes, that is a good idea. Yes, I would do exactly the same.
27:09 JIM ROGERS: which would eliminate a lot of excess capacity in the US and get rid of the dead wood. You know when you have a garden, you prune the trees and then the tree can bloom again. I would prune all the dead wood. We've got dead wood.
Speaking of Japan, the US Federal Reserves say this to the Japanese, "You need to write-off your bad debts. You need to clean out your balance sheets. You need to stop carrying all those zombie companies." But, at the same time in the US, the Federal Reserve is carrying those zombie companies.
MARC FABER: Yes.
JIM ROGERS: We have driven interest rates to nothing. Lucent Technologies is still in business. WorldCom is still in business. What you need to do is put all those companies out of business. You raise interest rates. You get rid of the dead wood and the whole system starts over. It causes pain. It causes pain for a month or a year or two years, but look what has happened in Japan? They have had pain for 13 years. Which do you prefer? 13 years of pain and another semi-crisis or two years of pain and get it over with?
MARC FABER: I would say, for capitalism, the most important is that bad companies go out of business—the bad ones—and the good ones survive. If you have a system where you support bad companies, you don’t have survival of the fittest, but survival of the weakest.
DANIEL YERGIN: Let’s turn then, if we're talking about that. Europe. We've talked about Asia. We've talked about the US. Let's turn and talk about Europe. The Netherlands has perhaps two or three of the most flexible economies in Europe.
JIM ROGERS: Ooh.
DANIEL YERGIN: You wouldn't say that?
JIM ROGERS: No. I know great things about the Netherlands. I own shares in the Netherlands.
DANIEL YERGIN: What about the labor market as compared to say, Germany?
JIM ROGERS: Do you know that the Netherlands has the highest rate of handicapped people in the world? They have 12% of the population is handicapped. Do you know why? Because you get very "special" benefits, if you are handicapped. And so everybody is handicapped. It is one of the greatest rip-offs in the system in the world. I am very bullish on the Netherlands. Don’t misunderstand.
But let’s talk about Europe. I own the Euro. I happen to think that that currency is better than the US dollar. I don’t think the Euro is going to survive ten years from now.
DANIEL YERGIN: Really?
JIM ROGERS: 15 years from now, it will break up and disappear. But I would rather own it.
DANIEL YERGIN: Rather than the three or four natural currency pools?
29:00 MARC FABER: No, I think it will work actually. I'm very optimistic about the Euro. I think it will survive. First of all, I go to a lot of conferences. At the present time, everybody is so down on Europe and everybody thinks that it is not going to perform well. That is why there has been this huge flow of funds into the US for the last four years, financing the current account deficit. But, actually I think that the inclusion of so many Eastern European countries into Euroland will be very good for Western Europe, because it will break the power of the unions. Actually, last year, people when say the markets were bad in Western Europe, the stock markets went down and in the US, but all Eastern European markets went up. Romania was up more than 100 percent. Bulgaria, Estonia, and Slovakia up 50 percent.
JIM ROGERS: In Euros or in local currency?
MARC FABER: No, no. In Euros! I'm talking about Euros. So we have actually a conversion play beginning last year, where real estate in Eastern Europe and the stock markets going up and Western Europe going down.
DANIEL YERGIN: Will the inclusion of those countries be the solution to the population problems in Western Europe?
MARC FABER: I think it is very good, because there will be a lot of immigration. And factories will shift to Eastern Europe and so forth. So there will be crosscurrents. But I think in general, the population will be enlarged. The zone will be enlarged and we will have a Europe that has a big economic zone.
JIM ROGERS: I think that Europe is making a mistake bringing in those countries. What I think is that Europe should do is bring in Turkey. Turkey has 70 million people. Turkey is an unbelievably young country. The countries you are talking about have a declining population and a declining birthrate. Turkey is very vibrant. They have a very, very good manufacturing base. That would solve a lot of Europe’s problems.
DANIEL YERGIN: And a strong entrepreneurial culture.
JIM ROGERS: Very strong entrepreneurial culture. This new government is terrific. I happen to have confidence in the new government. So, if Europe would bring in Turkey, which they probably won’t..
DANIEL YERGIN: There seems to be a certain degree of opposition.
JIM ROGERS: They say because they are not Europeans, but what they mean is they are not white. But that is outrageous if you ask me. And because they are not Christians. Who cares if they are not Christians and if they are not white!
MARC FABER: I agree we should bring in Turkey and Iraq. And then we would have some oil. So that would solve a lot of problems.
DANIEL YERGIN: It would also make up for the decline in the North Sea.
MARC FABER: Look, I would say one point about this whole Middle East expedition. I think nobody wants the Americans to control Middle Eastern oil—certainly not the Chinese and certainly not the Russians.
JIM ROGERS: Nor do the Saudis. Nor do the Iranians.
MARC FABER: Exactly.
DANIEL YERGIN: I think there is a lot of fantasy in that question actually. I don’t think that the US goal here is actually to control Middle East oil. I know that probably, many people don’t believe that. But I think you may agree or disagree with what the administration is doing, but I don’t think they would be engaged in what they are doing, or taking the risk in what they are doing, if they were not concerned about—in their view—weapons of mass destruction. They may be wrong about it, but I think that is what is motivating them. These people are not people who focus excessively on oil. Anyway, you can buy the oil.
MARC FABER: The US presumably also has weapons of mass destruction. So as a world citizen, I just ask you, only one country or can everybody have them?
DANIEL YERGIN: So you don’t like the US? I guess? You are suspicious of it?
MARC FABER: No, I didn’t say I don’t like it. I don’t think that one country alone should have weapons of mass destruction.
JIM ROGERS: Actually there are 15 countries that have weapons of mass destruction— India, Pakistan, Israel, the US, France, Britain, Germany, Russia, Pakistan, Uzbekistan, I can name 15.
MARC FABER: So, coming back to the question of where you should move? You should move somewhere very far away.
JIM ROGERS: Far away from what?
MARC FABER: From weapons of mass destruction.
DANIEL YERGIN: We're back to New Zealand.
JIM ROGERS: You were making a point about oil. We should take in Iraq. We should take in Turkey because then they would have oil. Was that a thought or are you going to develop that?
MARC FABER: No, I think in general, for Europe to become larger will be a plus because it will break the rigidity to the Western European systems at the present time. It will bring new culture, new people and so forth, and they will be harder working. Production will shift partly to Eastern Europe, so the cost will be lower and Europe will become more competitive. But I know everybody is bearish about Western Europe. I tend to be more optimistic, because I think that the statistics in the US have been doctored for the last ten years, especially in terms of productivity. And so I think that we
DANIEL YERGIN: So, you don’t agree with Mr. Greenspan?
MARC FABER: No, not at all.
JIM ROGERS: Please! Do you?
DANIEL YERGIN: I am just listening to the experts.
JIM ROGERS: I know that the figures about productivity and inflation are doctored, butchered. They are a sham! A total sham! I just told you commodities are up 80% in the last four or five years. And yet, if you listen to the US government, they will tell you there is no price increases. They will tell you that the price of oil is down. You know what? In November they said the price of heating oil went down 11%. Get out the numbers that they told you. I called them up and said, “How can it be down 11%, The Wall Street Journal said it is up 25%. My oil man says it is up over 25%.” How can you say that?" But the United States government reported in November 2002, the price of heating oil was down 11% and therefore there was no price inflation in that month.
DANIEL YERGIN: So you think that someone there calling up and saying, “Hey, fake the numbers, Joe.”
JIM ROGERS: I know! I have had BLS [Bureau of Labor Statistics] guys write me and say, “Look, we were told that we have to smooth out the numbers.” I know they are faking the numbers. And so does the rest of the world.
35:45 MARC FABER: Yes, and a lot of economic adjustments and so forth. And also, it is measured on a 40-hours week. If you work 41 hours or just a half an hour longer, it makes a huge difference on productivity numbers. And a lot of people work from their homes so that is not in the figures. In the service economy, lots of people work at night and so forth.
DANIEL YERGIN: So, do you think the GDP numbers are faked too?
JIM ROGERS: I know they are faked! The whole thing is faked.
MARC FABER: We would have to decide how do you define GDP growth. If you spend more than theoretically GDP has increased, but if the production is over in other countries, it's a questionable growth, especially if financed by additional debt. This is at issue. To what extent is the debt growth in this country? Sustainable in the long run? I agree with Jimmy. I think this country will have difficult economic times. I am not saying that the others won’t also have difficult times, but this country will have a time when the dollar will weaken. Not the question, as I said, is against what? I think it will be against the basket of commodities.
JIM ROGERS: But wait a minute. Do you think that the Germans, the French are going to work 40 hours a week? The Germans are going to stop taking seven weeks vacation every year? Do you think the Dutch are going to stop being handicapped?
MARC FABER: I think at some stage, the standard of living in Western society will go down, where people will have to work more or they will have to take lower standards of living. We have a huge wealth transfer at the moment.
36:57 DANIEL YERGIN: But to do that, obviously you face these immensely difficult questions about reforming the welfare states, reforming labor markets.
MARC FABER: Correct.
DANIEL YERGIN: Not Easy. You can only do it when you are in a crisis.
MARC FABER: Yes. This is the point also about China. You see, China at the present time has a set of problems. But, nobody addresses the problems. They just postpone them. And eventually you have the crisis and that's when problems get solved. I think the welfare state of Europe will also be solved one day—in a crisis, when it is physically impossible to pay the benefits to the retirees.
JIM ROGERS: Well, let’s just assume that it gets better. I have investments in Europe too. Let’s assume the dollar goes down. Let’s assume Asia gets better. Which we all think seem to agree on. Let’s assume that there is going to be terrorism, which we all seem to agree on—for better or worse, not making a value judgment. China, right now for instance—I don't know if you knew this—but as of 2002, China is the largest importing nation in the world, larger than the US. For the past 100 years either the UK or the US has been the largest importing nation in the world. China is now. Doesn’t this mean that the price of oil has to go higher? The price of zinc has to go higher? The price of everything has to go higher?
38:13 DANIEL YERGIN: I think that one of the really key dates was 1993. What happened in 1993? China went from being self-sufficient to becoming the net importer of oil. That has had a very profound impact on the world. You'll see pipelines. I think the future the relationship between China and Russia, instead of being based upon Marx and Lenin, will be based on oil and gas.
JIM ROGERS: So prices are going to go higher?
DANIEL YERGIN: When we look out, in our work, we look out and see oil supply increasing 20%. We are not bearish on supply.
MARC FABER: OK, even if it goes up 20%, so what? In the US we have 285 million people and you consume 22 million barrels of oil a day. In Asia we have 3.6 billion people and we consume 19 million barrels a day. So, in other words, the per capita consumption here is ten times higher than in Asia. I think in China, I can bet you whatever you want, the demand for food and energy will go up because as standards of living rise, there is an exponential growth in the demand for energy.
DANIEL YERGIN: Let me ask you, this growth in imports into China, that is a striking statistic you have. What is it? Is it mainly commodities that are coming into China? Are they importing manufactures from anybody else?
JIM ROGERS: It is mainly commodities, obviously, because they are producing. They are taking in zinc, cotton, oil and whatever.
MARC FABER: Coffee, cocoa.
JIM ROGERS: They are producing goods. They are consuming and they're producing. 20 years ago, the first time I went to China, the Chinese would say to each other, we say "Hello," they say “Have you eaten today?” That was the way you greeted. They had chicken once a year. Now they have chicken every day. They have pork. They have beef. They eat better than I do.
MARC FABER: But the per capita consumption of fish, meat, fruits, milk in Hong Kong, Taiwan—which is also Chinese—is still ten times higher than in China. I will give you a statistic. In Switzerland, the per capita consumption of coffee is 50 times higher than in China.
DANIEL YERGIN: In Switzerland?
MARC FABER: Yes, but because the Chinese population is 200 times larger than the Swiss population, they are already a bigger coffee market in terms of import into China than Switzerland. The Chinese will not drink as much coffee as the Swiss, nor will they ever be as obese as the Americans, but they can go to the South Korean, or Taiwanese or Japanese level one day. And that will boost the per capita consumption of grains especially, of energy, coffee, cocoa, sugar—dramatically.
DANIEL YERGIN: Do you all believe that China will eventually be the low cost source for everything?
MARC FABER: For manufactured goods, there is only one country that can compete with them at the present time and that is Vietnam. But, for commodities and especially for agriculture commodities, they have a water problem. There is not enough water in China. So that they will have to import. Plus, the Chinese are very smart. They are not moving the heavy artillery throughout the world. What they do is become very good customers of other countries so they gain economic influence in countries like Indonesia, Myanmar, Australia, all the African countries. So they will have their connections throughout the world and suddenly it will be a huge geopolitical power. Huge.
JIM ROGERS: They are the largest customer in the world now. Everybody tries to be nice to their customer. That is the best investment advice I could give you [Dan]. You, although I want investment advice, teach your children Chinese.
DANIEL YERGIN: My son is about to go to college, his freshman year. He has already determined he wants to learn Mandarin Chinese his first year. I told him to wait till his second year.
JIM ROGERS: Whatever he wants to do. I hope my new daughter learns Chinese. I hope I learn Chinese.
MARC FABER: You should open an English school in China. They all want to learn English so they can work and do business with Western Countries.
JIM ROGERS: I could do both. I could have a school in China for foreigners to learn Chinese and I can teach the Chinese English.
DANIEL YERGIN: So you say the reason to learn Chinese is because that is where the world economy will be moving?
JIM ROGERS: The 19th century was the century of the UK. The 20th century was the US. The 21st century is going to be the century of China, whether we like it or not. Asia is certainly booming and that's where I would be putting money. Every week I move money out of the US.
DANIEL YERGIN: What do you move it into? Commodities?
JIM ROGERS: That is why you are here, Daniel.
DANIEL YERGIN: You have been doing it. We want to know.
MARC FABER: I will tell you what a is a good play in Asia. I would buy real estate in Shanghai. Shanghai will one day have a bigger stock market capitalization than the US. The way Japan...
DANIEL YERGIN: So you don’t see a really big bump on the road in China?
MARC FABER: I see huge bumps! But, these bumps will shake the system, and then they will move on.
JIM ROGERS: We had huge bumps here.
DANIEL YERGIN: I guess we have, as you said, we had our Civil War, which tested our political system, but bumps that would really transform the political system in China?
JIM ROGERS: The US government went bankrupt 2 or 3 times. Don't you know that JP Morgan had to go down to Washington and bail them out. Actually, they came to New York.
MARC FABER: In fact, I would say that no matter what people say, the political system in China wasn’t all that bad. Because without the system such we have in China, we could never have this progress in such a short time. What the government did say in Shanghai is, "You hundred thousand people, you move to the right and you hundred thousand to the left and here is the bridge, and here is the tunnel, and here is the highway." In the Netherlands and in Switzerland, they object for 50 years to build a tunnel or a new bridge and nothing gets ever done.
JIM ROGERS: Marc and I seem to think that the globalization is more likely. Things are going to fracture again. What do you think?
DANIEL YERGIN: I think of poor Norman Angel, who before the first World War, wrote this book called The Great Illusion, which people always said that he said World War I couldn’t happen because things were too interconnected. That is not actually what he said. He said if there was a war, the economic consequences because of the interconnection would be much worse. And he was right. It took the Second World War, it took the Thirties. He was really right. So, you can see where the things could get on this slope and just not work. You have to leave room for people to make serious blunders, which is what happens in history. The other side of it as I prefer to—maybe for sanity—to sort of veer towards being a little optimistic that wisdom will prevail and the world won't go over the cliff.
44:49 JIM ROGERS: Why will wisdom prevail? If you think that, I would like to know. Because if wisdom is going to prevail, I would do entirely different things with my life, my money, with everything. Why will wisdom prevail?
DANIEL YERGIN: Why will it prevail? The kind of institutions and international culture that emerged out of the last disaster, that emerged after 1945, will have enough vitality in it.
JIM ROGERS: Daniel, you are right, but they are all dead. Nobody remembers it except you and me and Marc. We're the ones, we remember it because we've read about it. Most people don’t read about history anymore. I know the disastrous consequences of anti-globalization. You know it. Marc knows it, but that doesn’t mean it won’t happen.
MARC FABER: Yes, I think we have competitive evaluations to some extent.
JIM ROGERS: That is what I am afraid of.
MARC FABER: And in the end, everyone will just debase the currency and then all currencies will be bad except the hard currency, the basket of commodities and hard assets. That is why real estate is firm. It is unusual that real estate is up three years into a bear market.
DANIEL YERGIN: Do you worry about the quality of economic and political leadership in terms of having some vision?
JIM ROGERS: I can think of no good politician over the past 30 or 40 years other than the guy who is running Singapore. He has been an absolute genius. 40 years ago Singapore didn’t exist. Now it is the most successfully developed country in the world in the past 40 years. There is no second compared to Singapore. It has done it on its own. Can you name any other politician? The Chinese, to some extent. But other than the Chinese...
MARC FABER: Deng Xiaoping.
JIM ROGERS: He's dead, Marc.
MARC FABER: He was a revolutionary because at the time he moved to a market economy, which wasn't an accepted thing to do in China.
JIM ROGERS: So you are optimistic? What would you buy? What would you do? You'd keep your money in the US? You'd move to the US?
DANIEL YERGIN: I am not a big investor like you guys.
JIM ROGERS: That doesn’t matter. You are a visionary. That is why you are here.
MARC FABER: We only have one big investor, which is Jimmy.
JIM ROGERS: Dan, you are here to teach us. Let's look at it that way. What would you do? You are 56 years old. What would you do with your assets?
DANIEL YERGIN: I'm an analyst. Well, I think as a result of tonight’s dinner, I would have to rethink my asset allocations.
MARC FABER: The world is now at a fascinating juncture, because 3 ½ billion people joined the global marketplace and the capitalistic system as a result of the breakdown of Communism. There are so many crosscurrents. On one hand, they are producers and deflate the prices of fax machines, cell phones and PCs. At the same time, they are consumers. They will buy energy. They'll buy food and so forth. So they will push the prices of certain things up. I think in the next ten years, I would be long essentially, resource-based economies. I would even invest in Argentina today and Brazil because the price level is so low. I would invest some money in New Zealand, and in Australia, some money in gold in a safe deposit box, because I think the irresponsible central bankers force you to be your own central bank and have some of your own reserves. In general, Asian price levels are low. Real estate is low in countries like Thailand.
JIM ROGERS: You think as a Swiss.
DANIEL YERGIN: One last question. Do you all think—we have had of course the collapse in the stock market and so forth—do you think we still have a lot more collapse to go through?
JIM ROGERS: As far as I am concerned, the bear market in shares in the US is not over, which does not mean we cannot have a good year or two.
DANIEL YERGIN: So, you could see an 80% decline?
JIM ROGERS: The Japanese mutual fund industry has lost 95% of its assets since 1990. The American mutual fund industry is still fat and happy. They are sassy. They think things are great. Their guys are making lots of money. Nobody has felt any pain yet. But, let's go have coffee.
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