Lindsay Williams for Resource Investor speaks with Jim Rogers, co-founder of the Quantum Fund, about the financial woes hitting the US markets - and where to put your money.

Jim Rogers started the Quantum Fund with George Soros a couple of decades ago, probably three decades ago actually. He's a legendary investor. He's a bestselling author and he's a prolific commentator and never a day goes by when you don't see him on Financial Times Television or Bloomberg or listen to him on the wireless.

Jim, before we get into what's happening with commodities, which is one of your favourite subjects, what do you think about the recent market action?

Not very surprised. The only surprise to me is why didn't it start sooner? I'm afraid we're going to see much worse before the year's over. America's going to be in its worst recession for some time. We've had the worst housing bubble we've had in American history, maybe even world history. So, unfortunately, it's not good news. There are still many problems to be revealed and more losses to be taken.

It really does appear to be so. I wonder what Mr. Bernanke's going to be doing. But what it amounts to is the same policy that they've always employed when they get a small so-called crisis; instead of letting the cycle run its natural course, they chuck money at the problem. Do you think he's going to do it again?

Of course he is and it's just going to make it worse, you very astutely pointed out instead of just letting the cycle run its course - the Japanese tried for 15 years to keep propping up, you know, zombie companies, etc, and it took them 15 years and they're still aren't out of the woods. They should just go ahead - recessions are common. We've been having them every five or six years since the beginning of time. They're good. They clean out the previous excesses. They let the system start over with a sound basis.

I mean, obviously, some people get hurt, but we have a lot of safety nets in place now throughout most of the world, so that it's not the end of the world. The amount of money spent trying to prevent a recession in the end costs a whole lot more than just letting the world have its recession then get on with it.

I've been writing an article on Allan Greenspan and his tenure for a local magazine, Jim, and I've been surprised at looking at some of the quotes that have been attributed to Greenspan ever since he took over as Fed Chairman in 1987. I'll just read one to you if I may briefly. It says - he said the following back in 2003-04, "Innovation has brought about a multitude of new products such as sub-prime loans and also niche credit programmes for immigrants. Such developments are representative of the market responses that have driven the financial services industry throughout the history of our country. With these advances in technology, lenders have taken advantage of credit scoring models and other techniques of efficiently extending credit to a broader spectrum of consumers." I mean the more I read about Greenspan, the more I realise he's at the root of our current problems.

Oh no, of course he is. I mean he's laid the foundation for the demise of the Federal Reserve. Between Greenspan and Bernanke, we may see the Federal Reserve fail. We've had three central banks in America. The first two failed. This one's going to fail too. I mean if you really - we could spend a whole programme, a whole year of programmes, reading quotes from Greenspan and you would realise what a fool he's been.

In my book, "Investment Biker," I wrote that the man was a fool. I've been on TV many times talking about, oh, he just sat and watched CNBC and repeated it and said, "This is the way the world is." He never got it right, Lindsay. What was so astonishing to me was that his PR machine made some people think he was a smart guy. He never got it right in his entire investing career. I could go back over many of his failures too, but let's go on with the programme.

But briefly, before we leave the subject, do you think that Bernanke is just going to become another Greenspan?

He's worse. All he knows is to print money. His whole intellectual career has been spent studying the printing of money. America's now given him the printing presses and all he knows to do it to run them. He doesn't know about markets. He doesn't know about foreign currencies. We know now he doesn't even know about economics. I mean, he's got a PhD in economics and he was a professor of economics, but he doesn't have a clue about economics.

I will quote you - I hate to quote you, but one more time - I was watching him testify before congress and I almost fell out of my chair. He said under oath, so we presume he wasn't lying, that he was just a fool, he said if an American only buys American products, it does not matter to him if the value of the U.S. dollar goes down. He will not be affected. I was looking at the man to see if he was lying, giving government propaganda, but then I could see he didn't even really understand.

He didn't understand if, you know, even if say I'm an American, Lindsay, and I only buy American tires. Well if the price of foreign tires goes up, obviously the price of American tires are going to go up too. Plus, if the dollar goes down, the price of rubber's going to go higher, etc.

So the man doesn't even understand economics. He's going to print money. He's going to throw money out the window. The dollar's going to go down further and further and further. Inflation's going to get worse and worse and worse throughout the world - the world, not just America - and we're going to have a worse recession in the end.

He says that the inflation problem is a lesser problem than a slow-growth cycle. What would be your comment on that analysis?

Well, no. You know better than that. Inflation damages everything. It distorts all economic planning, all economic decision making. A slow economic profile or whatever he called it - we get over recessions. They end. But once you start embedding inflation into the entire nation's economy, that's one thing. Then it changes everything. It changes currencies. It changes foreigners' perceptions of their own economy, their own currency, their own cost of doing business.

You know, what he's doing is going to do - he's trying to save a few guys on Wall Street, a few friends on Wall Street, but what he's really going to do is damage 300 million others- well not just 300 million Americans - he's going to damage the whole world. But he doesn't care. He's just looking to save his friends on Wall Street, and he thinks he'll go down in history as a smart guy. Going to go down in history as one of the two gigantic failures of central banking.

Let's say that there is a recession as you seem to believe the U.S. already in recession and that recession will come deeper. Does that change your view on commodities, because if there's a recession in the states then it could affect, obviously, world growth and therefore the growth of commodity demand? Does that worry you?

Maybe temporarily it'll cause a slowdown in commodity demand, but that makes the long term bull case even greater because if all of a sudden the commodity producers think, "Well, this is not real," then they're not going to go out and open that new zinc mine and they're not going to go out and look for that expensive oil. They're not going to spend a lot of the money they might have spent otherwise.

It just prolongs the whole secular bull market. No, absolutely. You have corrections and consolidations in every bull market no matter what the asset. You always have. That's the way markets work. Nothing goes straight up, Lindsay. You know that. So if commodities go down for a quarter or a year or two, it's not the end of the bull market. As I said earlier, it's probably going to make it even last longer. 

The bull market in commodities is - has been - has had various cycles, various components to it. The agricultural one is the one that you picked quite a while ago. And more and more commentary that I read says it could last for decades. So I mean it's a very simple equation. There's more demand and there's less supply. Are you becoming more confident of agriculturals?

Well, I've been buying them in the recent past, a few weeks ago. I bought more ags, yes. Agriculture is the best place - one of the few places - where I would put money in the investment markets right now. I'd buy agriculture. I'd buy the renminbi, the Swiss frank, the Japanese yen, but beyond that, there's not much I see that I would be buying. Agriculture's still extremely depressed on a historic basis. There are very sound and strong fundamental changes taking place for the better.

People who say it's going to go on for decades, I'm dubious, if you don't mind my saying so because I mean, I've seen this before in bull markets and read about many of the bull markets. None of them have lasted forever. This one probably won't either, but if it lasts another 10 or 15 years I'll be quite happy.

Looking back at Wall Street now, I just noticed, Bank of America came out with its earnings. Its earnings have dropped, it says here, 95% after $5.28 billion of mortgage related write-downs. The American investments banks were one place you said you didn't want to be about a year ago. Do you think they're starting to show some value now that they've been so badly whacked?

Well, what I actually said a year ago was that I'd sell them short and I'm still short. No. They don't show value at all. If they rally, I'm going to short more. I mean Bear Sterns still sells at $77.00. Merrill Lynch still sells at $53.00. You know, in real bear markets, Lindsay, these stocks are going to sell at $10, not specifically those two, but all - go back and look at previous bear markets. Investment banks get killed for many, many, many reasons. Their inventories go down, their customers dry up, everything goes bad and the stocks sell at, you know, very, very, very low prices. Let them rally. I'm going to sell more.

The argument that I get from a lot of fund managers in South Africa when it comes to the argument over banks is that they're historically on very low price earnings ratios and their multiples are low and they come up with every single excuse in the book as why we should be buying them and every day I see them going down further. So what you say you can throw that sort of historical analysis out the window? In a bear market, they're the ones that are going to suffer?

Of course they are. I mean first of all, the earnings are phoney earnings. I mean the balance sheets are phoney balance sheets. They quite openly acknowledge these days that they have something they call tier three assets. Well, tier three assets are assets that they don't price because they can't price them and so far, the accountants have let them get away with that. Well, soon, the accountants are going to make them admit that those tier three assets don't have much value and you're going to see huge write-downs.

And remember, the stocks are down now, Lindsay, because of what's been going on in sub-prime, etcetera. Wait until they start getting affected by the bear market. They haven't even been affected by the bear market yet. But when customers dry up, trading volumes dry up and mergers and acquisitions dry up and the earnings will really dry up.

You paint a very gloomy picture for the future, Jim. I noticed in one of the....

Oh, no, no, wait. What's gloomy? Hold on. What's gloomy? That was gloomy for Wall Street. I told you if you're a farmer, you're about to get rich. What are you talking about gloomy?

Gloomy for those poor Wall Street people.

There are a lot more farmers in the world than there are Wall Street bankers.

Yeah, well said. I noticed you, in an article in one of the news wires that you'd sold your townhouse in New York. Are you clearing out?

Well, I've moved to Singapore. We've moved to Asia. So, clearing out? Yes. I've moved to Asia. I don't have any - I don't have a home anywhere in America anymore. I'm still an American citizen, but no. We've left.

If you want to get into the agricultural market, what is the most efficient way to do it if you don't have the wherewithal to be able to utilise, you know, the Chicago Board of Trade and things like that. Are there indices that one should look at without having to monitor them every day, a simple way of getting in, in other words?

Well, Lindsay, I mean many academics and many consultants have demonstrated over and over again the best way for most people to invest in anything, stocks, currencies, whatever, is through an index. I'm not the first to come up with that and you either. That's been demonstrated too many times. People who invest in indexes outperform 80% of active fund managers year after year after year.

The best thing for most people to do is buy an index. I mean first do your homework and decide, "Yes, I want to buy stocks. Yes, I want to buy American stocks. Yes, I want to buy commodities," whatever it is. And then if you decide you want to buy that asset class, the best way to invest, no matter what the asset class, is to buy an index.