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How accurate is Jim Rogers?



July 25, 2011 – Comments (2)

I have been following Jim Rogers, famed co-founder of the Quantum Fund, for nearly two decades, ever since I discovered his first book, "Investment Biker".  Recently I was going through a stack of old articles that I'd printed out to read on my commutes to and from the office. I came across an op-ed piece published in CNN Money in December 2008 where Rogers offered the following  predictions:

1. "[US investors] are in a period of forced liquidation."

Accuracy:  With almost three years of hindsight it is difficult to conclude that US investors were not in a period of forced asset (specifically equities) liquidation.  The past three years have seen large-scale forced liquidation of equities and real estate assets in an attempt to reduce part of the private debt burden.  It was reasonable to see many banks, mortgage insurers, and housing stocks crash when the credit and real estate bubbles burst.  But when Pfizer falls from $28 to $8 a share, when its cash reserve was 4-5X its debt burden, one might conclude that many investors at that time sold solid investments to pay their debts owed on bad ones.

2.  "Virtually the only asset class I know where the fundamentals are not commodities." 

Accuracy:  I'm sure that many can argue this one; you begin by arguing the definite of 'asset class'.  Let's limit the assessment of the definition to: equities, bonds, sovereign debt, commodities, and real estate. While fundamentally strong investments exist within each of these classes, I think it is accurate to say that commodities are the only asset class where fundamentals (i.e. supply, demand, valuation) have been relatively sound over the past three years.

3.  "[Rogers has] covered most of [his] short positions in U.S. stocks, and [he's] now selling long-term U.S. government bonds short."

Accuracy:  The article doesn't specify when Rogers took those short positions so we don't know where he started the strategy. In December 2008 the S&P was around 875-900.  On March 2, 2009 it had fallen to 683.  Rogers may have been able to get more mileage out of his short position, but he's never been known to be greedy once he's made a healthy return.  In December 2008 10-year Treasuries yielded 2.1-2.7%, and the yield range has been 2.9-3.2% during July 2011.  As yields increase, bond prices fall, so it looks like Rogers might be making some money on this strategy as well.

4.  "There are going to be gigantic amounts of bonds coming on the market, and inflation will be coming back."

Accuracy:  This is a little bit trickier than the first three since inflation is a matter of interpretation (i.e. the components of the inflation index).  Surely it is simple to see that the first part of the prediction is accurate; the US total national debt in December 2008 was $10.7T and now stands at approximately $14.3T; yes, I'd say that $3.6T in new debt fits the definition of a 'gigantic amount'. Inflation is a bit trickier subject; Bernanke and the Fed say that inflation isn't here (yet), but any average American has seen food, utility, and fuel prices increase over the past three years.

5.  "In [his] view, U.S. stocks are still not attractive."

Accuracy:  Beauty is in the eye of the beholder, and in the eyes of Jim Rogers attractive price ranges for U.S. stock are found at or below the historical average of eight times earnings and/or 6% yield.  As of July 2011 the P/E for the S&P 500 is 23.6 (16.4 mean) versus 15.17 in December 2008 and the current yield is 1.75% (4.34% mean) versus 3.24% in late 2008, definitely not a an attractive equities market by Rogers' definition of the term. If they weren't attractive by his standard in late 2008

 Rogers has never claimed to have perfect timing of events, but his fundamental macro analysis is based on relentless research, meticulous analysis, and an uncompromising contrarian investment philosophy.  And let's face it:  if Rogers' investment analysis weren't accurate then he probably wouldn't be a centimillionaire right now, would he? 


2 Comments – Post Your Own

#1) On July 25, 2011 at 12:28 PM, pscholte (< 20) wrote:

From watching his interviews, and reading his most recent book, he often seems like a little boy caught too much caught up in his own ego and in his emotions.  While he may be right many times, I just cannot develop confidence that his recommendations are the result of cool analysis.  I may rue doing so, but I am staying away from his advice.

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#2) On July 25, 2011 at 12:44 PM, AvianFlu (34.92) wrote:

Good analysis! It may be a little premature to judge his recent calls since the story has not played out...especially inflation, for which the story is still in its infancy.

Rogers appeals to me in part because of his vast knowledge of history. That is a big advantage in understanding macro trends.

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