Rogers: What Bubble? Buy Commodities

Commodities guru Jim Rogers says the supposed bubble in commodities is actually a bull in disguise — and that he expects years of price rises ahead.

"The only bull market I know of right now is in commodities," says Rogers, developer of the Rogers International Commodities Index.

The index uses futures contracts to track the value of 36 exchange-traded physical commodities, including agricultural, energy and metals. It shows the performance of tracked commodities up 9.34 percent for the first quarter, from 2.83 percent a year earlier.

Rogers acknowledges that some commodity markets might seem to be at their peak. But, he says, commodity prices typically rise over 15 to 20 years.

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"There are only five or six commodities that have made all-time highs, and most are not even above the old all-time highs,” Rogers said in a recent interview.

Since the current round of rises began in 1999, that puts us about halfway to the next peak, which should occur sometime between 2014 and 2022.

Rogers points out that the main reason for bull markets in commodities is supply and demand.

"There was a bear market in commodities so no one invested in productive capacity,” he says.

"In the ’80s and ’90s, we had a bull market in stocks, but nobody called you up and said ‘Let’s invest in a sugar plantation’ or ‘Let’s invest in a lead mine,’” he says.

Convinced that the stock market panic is over, Rogers has begun putting some money into Chinese shares, too, focusing on agriculture, tourism, airlines, and education.

He’s also bullish on the Chinese yuan, which he believes will eventually rise to two yuan per dollar. It traded recently at nearly seven yuan to the dollar.

But commodities remain Rogers’ first choice.

He frequently points to studies at Yale and Wharton that showed investors making 300 percent more by buying commodities instead of commodities stocks.

"If you find the right company, yes, it’s a good investment,” he says.

"But, otherwise, you’re better off buying gold. You’re better off buying natural gas. You’re better off buying wheat.”

For example, when oil prices rose 10 times over during the 1970s, many oil companies did not go up. "There’s been no major oil discovery anywhere in the world since 1970,” Rogers says, but oil stocks don’t necessarily go up when the price of oil is high.

The value of investing in the commodities market has its share of skeptics, however.

"For the futures markets to fill their role in helping everyone discover the appropriate value of commodities, the cash and futures markets need to come together at the end of the day in some consistent fashion,” American Farm Bureau President Bob Stallman recently told the Commodity Futures Trading Commission.

"Otherwise, the futures markets are no different than Las Vegas.”

In a counterpoint, Rogers notes that during one two-year period in the 1970s, gold went down by 50 percent. He cautions against neophytes trading in commodities too fast and too soon.

"A lot of people panicked and gave up, because it was a big two-year draw-down,” he says.

"Gold did a turnaround and went up 850 percent. This is the way markets work, and if you don’t understand this about markets, you probably shouldn’t be investing in the first place.”

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