Jim Rogers gives cold comfort to China bulls

Last Updated : 15 June 2011 at 17:50 IST

By Justice Litle, Editorial Director, Taipan Publishing Group
Jim Rogers is the most famous China-and-commodities bull on the planet. He even wrote two books on the subject: Hot Commodities and A Bull in China.

Recently Jim did a new video interview with The Wall Street Journal. In that interview, he expounded on all his favorite themes -- including why he is bullish on China for the long term.

What he had to say, though, wouldn't exactly be considered comforting for fund managers still heavily invested in China. Here is an excerpt:

WSJ: One of the things the Chinese government has to deal with -- it has to cool down the economy, you alluded to it earlier. And it has to provide its people with growth because they have come to expect it, otherwise they get unrest. How are they going to do that? Is that tightrope possible to walk?

Jim Rogers: Well we'll find out in the next 30 years. America did it -- again, America had lots of serious, serious problems. As recently as 1907 America went bankrupt. The whole thing, Washington... J.P. Morgan had to step in and bail everybody out. China is going to have that kind of problem. Will it lead to an overthrow of the government? I doubt it, but let's suppose it does. They're not going to bring back Mao Tse-Tung. They're going to be throwing out the communists. Mao Tse-Tung's not coming back, I assure you. China's not going to be communist ever again.

We have never quibbled with Jimmy on the above points. It may, in fact, still turn out to be the age of the dragon. The 21st century could be China's, much as the 20th was America's.

And yet, we are talking about more than a speed bump or two along the way here. Whether or not China survives is not the major question for those with heavy investment exposure.

The more important question is, what if China does get a 1907 event -- or a 1929, where the country doesn't go bankrupt but all the long-side speculators go bust?

Such would be disastrous for global equities, and for commodity prices too. Global deflationary pressures would be massive in the event of a China meltdown. Leveraged investors everywhere would sell risk assets like the plague.

As Jim Rogers says, China might well bounce back after an extreme bloodletting like that. And the dragon is sitting on trillions in reserves, which makes the prospect of bankruptcy remote.

But China's trillions are cold comfort, too, for anyone who recalls that America prior to 1929 and Japan prior to 1990 also had the "trillions in reserves" equivalent... and went through devastating crashes anyway. (It is not easy to move large amounts of money through a system at will, especially when inflation pressures are high.)

The irony is that the China bulls and bears could both be right -- just in different time frames.

Short seller Jim Chanos has declared China on "a treadmill to hell" and said its property bubble is "Dubai times a thousand." Hedge fund manager Hugh Hendry, and more recently analyst Nouriel Roubini, have pointed out China's massive overcapacity problem, reflected in "ghost cities" and bullet trains no one needs.

Leading China bull Jim Rogers, meanwhile, openly acknowledges the boom/bust cycle, going so far as to say "China is going to have that kind of problem."

One can be positive on China over many decades, then, while bracing for a train wreck in the short term. As food inflation rages and the property bubble moves closer to bursting, there is increasing evidence that the wreck is nigh.

For example, as the WSJ reports:

BEIJING -- A wave of violent unrest in urban areas of China over the past three weeks is testing the Communist Party's efforts to maintain control over an increasingly complex and fractious society, forcing it to repeatedly deploy its massive security forces to contain public anger over economic and political grievances.

The simultaneous challenge to social order in several cities from the industrial north to the export-oriented south represents a new threat for China's leaders in the politically sensitive run-up to a once-a-decade leadership change next year, even though for now the violence doesn't appear to be coordinated.

In the latest disturbance, armed police were struggling to restore order in a manufacturing town in southern China Monday after deploying tear gas and armored vehicles against hundreds of migrant workers who overturned police cars, smashed windows and torched government buildings there the night before.

In politics it is a mortal sin to "flip-flop." But in trading and investing, flexibility is a virtue. Jim Rogers, the official spokesman for China bulls if ever there was one, has given you permission to be a bear (1907 anyone?) before turning bull.

Courtesy: www.taipanpublishinggroup.com

Source: http://www.commodityonline.com/news/Jim-Rogers-gives-cold-comfort-to-China-bulls-39995-3-1.html

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