Sunday, July 10, 2016

Two Lessons on China and Commodities, From Legendary Investor Jim Rogers

Maybe not tomorrow, but eventually, China will devalue its currency. And prices for uranium and coal and other undervalued commodities will recover. That's because, in the end, markets always win.

That's the application of some of the sage advice from the books of legendary investor Jim Rogers. Rogers co-founded the Quantum Fund, one of the world's most successful hedge funds, in the early 1970's. He quit full-time investing in 1980 after generating returns of 4,200% over 10 years.

Afterwards, he traveled the world several times, and he wrote about his experiences. Those books include Investment Biker and Adventure Capitalist, investment tourism books that are must-reads for anyone interested in global markets.

I found a few important lessons that are relevant to today's investment markets while re-reading parts of Rogers' books (including his more autobiographical book, Street Smarts). Here are some of those lessons:

1. Central Banks Will Always Fail to Control Prices (from Investment Biker, 1994)

China's renminbi is a prime example of this today. The Peoples Bank of China, China's central bank controls its currency's exchange rate. It's only a matter of time before the central bank is forced to allow the renminbi to decrease in value. We've written about this before, and Jim Rogers has told us the same thing. Nearly every central bank that attempts to control its currency must eventually give in to market forces. This has especially proved true in recent decades.

Many investors worried that the renminbi was going to drop very suddenly last January. As it turns out, it didn't. So, talk of the renminbi's depreciation is no longer making headlines. But just because business journalists have stopped talking about the renminbi doesn't mean the issue has gone away. Global markets will continue to react to uncertainty over the Chinese renminbi until the currency is allowed to trade freely...

- Read the full story on The Street