Jim Rogers Is Downbeat On Investment Banks

Source : The Business Times, March 6, 2008

Also says he's not buying S'pore property for now for several reasons

Commodities bull Jim Rogers says he is taking long positions on commodities and going short on investment banks, which are likely to lose more money.

'It grieves me to see what Singapore is doing,' he said, referring to the investments that the Government of Singapore Investment Corp (GIC) and Temasek Holdings have made in banks.

GIC and Temasek have made significant investments in Citigroup, Merrill Lynch and UBS.

'(They) are going to lose money,' he said. Banks have been rocked by losses arising from exposure to sub-prime debt and some have seen their share prices go down - even though the shareholders may be sitting only on paper losses.

Mr Rogers was speaking to the press yesterday at a briefing on the impending launch of zero strike participation certificates (zero certs) linked to enhanced Rogers International Commodities Index (RICI) and related sector indexes.

Miles Ashton, ABN Amro head of sales and public distribution (Asia) for private investor products, said a listing date for the cert is yet to be finalised.

The bank has so far issued US$1-2 billion worth of products linked to RICI. The RICI Enhanced Index is an optimised version of RICI, and produced in partnership with Mr Rogers. So far, some US$250 million worth of products have been issued linked to the RICI Enhanced index. 'There is considerable interest,' he said.

The enhanced version seeks to overcome the underperformance that has been seen in commodities indexes in the last few months. Large inflows of capital into the indexes have caused a 'distortion' in the prices of one-month futures contracts, said Mr Ashton. Most indexes automatically invest in one- month futures contracts. The enhanced index seeks to vary the roll schedule, taking into consideration seasonality, liquidity and other factors.

So far, based on backtesting, the enhanced RICI would have generated a cumulative return of 519 per cent between 1998 and October 2007, had it existed since 1998.

It would have outperformed the RICI total return index's 411 per cent return, and the DJAIG index's 234 per cent.

Mr Rogers said the bull market in commodities is probably about one-third of its way through the cycle - which, based on history, could last between 15 and 23 years. He is particularly positive on agriculture.

'Inventory of food is at the lowest it has been for 40-50 years; we may face mass starvation. The world is in a precarious position. Commodities prices will go higher, no matter what the US dollar does,' he said.

Mr Rogers, who has moved to Singapore with his family, said he is not buying Singapore property for now for a number of reasons. 'I expect there to be a slowdown, if not a decline; it is happening already.'

Slower growth, for one, may cause a drop in the number of foreigners here, which could dampen home prices, he said.