What is the best single thing you can do for your children? Send them to Asia for school so they can get a good education and learn Mandarin.
Or so says a thinker and investor Jim Rogers.
Some investors achieve the status of being legends, their opinions on all matters of economics and politics sought by everyone. Rogers is an example of that in our time, and for good reason.
His life began in rural Alabama. Then he became an intellectual and professor. Enticed by Wall Street, he tried his hand at the markets and won. He then became a world traveler who set world records, and then became a best selling author.
It was my pleasure to be invited to moderate a private forum in Atlanta, Georgia, at which Rogers was the guest of honor. I got to ask the questions in front of an audience of financial professionals I’ve always want to ask him. We had lots of fun.
Rogers’s big picture forecast is that the U.S. and the dollar are in the process of relinquishing their dominant position in world affairs to Asia. All throughout Asia, people are saving money, working long hours and asking for more work not less. In the United States, we are racking up more debt, saving less, working less, complaining more, and asking only for more goods and services from government.
I was struck by how his analysis is so influenced by cultural observations. He pointed out that the Fed has contributed mightily to the wrecking of entrepreneurship in the U.S. Its low-interest rate policies are actively punishing savings. Its tax policies are punishing profitability and income earning. Its fiscal policies are encouraging dependence. Its educational practices are socializing another generation into laziness and dependence.
What a picture! As a result, he is urging young people to consider getting out. Get your passport, seek your education online, and find a position in Asia. Our great great grandparents uprooted themselves to seek a better life, and our children should consider doing the same. Travel is the first step. It opens up the world and helps us see new opportunities.
As for learning Mandarin, that’s what he is doing with his two daughters. He lives in Singapore in order to make sure this happens.
It’s radical stuff but he is walking the walk.
On the dollar, he is bearish. The Fed has been busying for five years trying to destroy the future of the dollar. Its policies have benefited only insiders but made a mess out of the rest of the economic infrastructure. He thinks that 2008 was a mere warmup for what is coming down the line. What will replace the dollar? He is mildly optimistic about the Euro, temporarily bullish on the Russian ruble, and he is also feeling very good about precious metals like gold and silver.
On commodities, he is sticking by his known love for real stuff over fancy financial products. To his mind, the world food supply is not as plentiful as people believe. Farmers are in a more secure economic position than Wall Street stockjobbers. As for the legions of MBAs that the U.S. is producing, he finds them mostly worthless. A better credential to have is evidence that you can drive a tractor and get stuff to grow.
On bonds, he sees the end of the long bull market coming to an end. The yield curve only looks like it does due to massive intervention by the Fed. This artificiality cannot last. It won’t take much beyond a slight change in the pricing of long-term debt instruments to set off a chain of events that will blow up the Feds balance sheet and utterly wreck whatever stability that exists in the debt outlook for the U.S government. The debt cannot be paid now, but when the world decides that holding the debt is too risky and expensive, the bond bubble will explode, destroying many portfolios in the process. The new crisis will cause new policy panics and bring about a series of catastrophic decisions that will make 2008-2013 look like a mere prelude to the real action.
As for oil, he is bullish but not concerning the U.S. productive capacities. He is not very impressed by the predictions that shale and fracking change much at all, and sees many other regions of the world friendly to the whole industry.
As for technology, he sees the action leaving the U.S. and the world center of innovation emanating from Asia. In fact, he is not very impressed at all but much of the technological production of the U.S. over the last ten years.
A pretty dark picture? It would seem so, unless you speak Mandarin.
The moment of the evening that stands out to me the most really amounted to a brief musing on the whole subject of forecasting. Before offering his forecasts, he eloquently defended the whole enterprise of making predictions.
Predictions can never before scientific, he said. The future is always uncertain and subject to an infinite number of changing variables. Those who presume to have found the magic key to knowing the future — whether they are using high-powered mathematical models or the old-fashioned crystal ball — will be humbled. Human affairs are just that way, and there is no technology that can fix that.
Rogers said that he has been plenty wrong many times in his life.
At the same time, he continued, forecasts are unavoidable. It is not just stock pickers and economists who make forecasts. We all do. We must. We have to act now with the presumption that we have some inkling of what is around the corner.
Riffing on what he said, we go to school hoping to use our education later. We save money hoping to find things later on which we will spend it. We choose our personal associations based on the presumption that people won’t suddenly become different next week.
We all make choices anticipating the future, knowing full well that we could be wrong. We can’t be disabled by the knowledge that the future is essentially unknowable. If we fear that we are wrong to the point of inaction, we doom ourselves as acting persons. In this sense we are all investors, whether we are betting on stock symbols or not. We seek to make judgments that pay off down the line.
How do we make the future slightly less uncertain? How can we work toward making the best predictions? We seek out information. We try to make sure it is the highest quality information. We find many sources for our information. We evaluate it in light of our own education, experience, and intuition. Sometimes this information makes all the difference. Even so, there is no perfect foresight. We can be spectacularly right ten times, and calamitously wrong one time. Or it can be the reverse.
Having said that, he moved on to make the predictions above.
Somehow his small talk gave me a bit of boldness of my own. Having been heavily schooled in the Misesian tradition against statistical prediction making, I love headlines that make fun of economists and how often they are wrong.
It’s just thrilling and fabulous to see big shots laid low by the relentless surprises of real life. Nothing gives me a kick more than to see a model blow up. To see arrogant know-it-alls — especially bureaucrats and politicians — explode in the face of reality that refuses to conform to their outlook restores my faith in prospects of human liberty.
But we can go too far with this line of thinking. We can’t just decline to forecast.
Education and learning improve our ability to forecast, certainly qualitatively but even quantitatively.
As just one example — one that Rogers returned to several times — was the belief on the part of the Fed and the Treasure through two presidential administrations that their stimulus would bring higher economic growth and low unemployment. It hasn’t happened. Rogers hasn’t been surprised by this, and I haven’t either. Anyone who has read deeply in the classical and Austrian traditions of economics could have seen this coming.
Our predictions have been better than theirs.
The beauty of having access to a great investor with a proven record is that you can know that his skills are likely to be more finely honed than the average person on the street. No one is infallible but some predictions — we can predict — are likely to be true more often than other predictions.
I said earlier that his soliloquy on forecasting inspired me. So let me forge ahead with some of my own. I don’t see any of the food problems that he sees. With massive federal subsidies and vast technological improvements in farming, we have far too many, not too few, farmers. Many dismiss the technological innovations over the last years as superficial, but I disagree. I think of Facebook, Twitter, Google, and smartphones as some of the greatest productive capital ever created.
As for the the coming Asian century, that could be right. But unlike the 19th and 20th centuries, the age of the superpower is over. One region’s prosperity doesn’t come at anyone else’s expense. Everyone can win in a world without borders and wars, and that is the world I believe is being born today. As for the dollar and the fiscal disaster, I’m a Rogerian in most every way.
The beauty of investor-intellectuals is that their ideas are tested in the real world. That’s what makes them different from the tenured professors running the universities. A man like Jim Rogers might not be right on all things; no one can be. But in the balance, I would take his forecasts over a thousand econometricians with nothing at stake in the outcome.