Jim Rogers, co-founder of the Quantum Fund, By RUSSELL FLANNERY, Forbes Blog

By RUSSELL FLANNERY, Forbes Blog,

Inflation, the outlook for commodity prices and social unrest in the Middle East are three of the most important topics facing global investors today. On the sideline of the “World Money Show” in Shanghai on Saturday, I talked about all three and other subjects in the news with Jim Rogers, co-founder of the Quantum Fund, and best-selling author of investment books including “A Bull in China: Investment Profitability in the World’s Greatest Market.”  Excerpts follow.

Q. What’s your current take on China’s economic outlook?

A. The China boom continues. The China prosperity continues. I notice it spreading. The property boom continues to spread. I see that more and more. But of course, there are those who think that it’s a property bubble, including me – at least I think there is a property bubble in coastal cities. The government is trying to pop that bubble as you know and I presume that they (will) pop the bubble. The Chinese government has enough authority and control that they can pop something if they really mean it. We’ll see.

Q. What about inflation in China?

A. It’s here. It’s serious. It’s going to get worse. Part of it comes from China because they’ve got the block on currency and the money’s trapped in China. It has to go into something so it goes into furniture and property and real goods and whatever else. So that’s part of the problem. But the real problem of course is the U.S. is printing a lot of money, and that’s sloshing around. No matter how much the People’s Bank of China might resist, the U.S. central bank is much, much, much bigger, and has got a lot more money. All central banks are up against the fact that we do have a commodity boom market, and even if they didn’t print money, the prices of things are going to continue to go much, much higher. So forget the printing of money, for the moment, we’re going to have more inflation. But with U.S. pouring gasoline over the fire, it’s going to be much more difficult for anybody to stop inflation.  America is fanning it as best as (it) can, and it’s going to get worse.

Q. Given that kind of outlook, where are you investing in China?

A. The only thing I’m buying in China is the RMB. I can’t just pick up the phone and buy millions of RMB as you know, but when I can buy more RMB, I do so legally. I’m not buying Chinese shares. I would like to buy Chinese shares when they collapse. I don’t know when the next collapse will come, but there’s always a collapse in every country, so I would buy more. My view toward China is different from any other investment. I buy these shares, and I plan to hold onto them for my grandchildren – my children, anyway. I hope they own them for their grandchildren, because I’m convinced that China will be the great country of the 21st century.

Q. What are some of the companies that you’re sitting on for your grandchildren?

A. I own the airlines. I own vineyards. I own coal and natural resources. I own tourism companies I own. That’s the sort of thing that I own here, and I’m looking to buy more.

Q. What about the B-share market? That’s relatively cheap.

A. I never buy A-shares. I buy B-shares, H-shares, S-shares and ADRs sometimes because they’re always cheaper. The shares which are not A-shares, they will always trade cheaper than the A-shares, so I never buy A-shares. I started buying B-shares in the spring of 1999 because I thought I could buy at that time and they were unbelievably depressed.  I came in late of 1999 and I looked around and said, “My God, look how cheap these things are! Look, this is amazing!” So I bought up the B-shares and that’s when I bought Changyi for the first time.

Q. What do you make of all these Chinese Internet listings in the States? Just last week there was another company.

A. I have not bought any of those, mainly because I don’t really understand technology and it’s not my style.

Q. The multiples seem rather high?

A. Yes. What I’m getting at is that I’m skeptical of why they’re selling in the U.S. I guess I know why they’re selling in the U.S. — because they can get a higher multiple. I don’t like to buy high multiple stocks, especially ones I don’t understand. It’s not for me. Doesn’t mean they’re not going to be great successes, it just means it’s not for me.

Q. In the commodities, prices have come up quite a bit. Are there areas you think still have room to climb?

A. Agriculture as a sector. Sugar prices have gone up 500% in the past few years, but sugar is till 50% below its all-time high, which just shows you how depressed agriculture is. So with agriculture as a class, it’s still the most depressed on a historic basis. I try to find the ones that are still depressed like silver and natural gas or rice. Even though it’s been booming, silver is still 30-40% below its all-time high. If I’m right, agriculture prices are going to go much, much higher.

With a lot more social unrest in the world, more governments are going to fall, more countries are going to fall, because we’re going to have serious increases in prices of agriculture.  People don’t go into the streets when the price of copper goes up, because they don’t know or care, but if the price of sugar and rice and wheat goes up, everybody knows that day, and everybody’s unhappy that day. That’s part of what’s happening in the Middle East and it’s going to continue. There’s going to see more and more social unrest. We’ve had a fair amount of social unrest in the past few years because of agriculture. It’s going to get worse, much worse, or better depending on which side you’re on.

Q.  What other parts of the world do you see as risky?

A.  I would say any place that’s had one person in place for 30 or 40 years. When things start going wrong, it’s easy to blame that guy. Qaddafi’s been there 42 years! Same guy for 42 years! Even in China they change the guy every five years, which makes it better, because you do have change and you have new faces. So it’s mainly places that have had the same old guy for a long time where I see the most pressure.

Q. What do you make of the ultimate fallout from Japan?

A. I bought some Japanese shares last week. I was thinking about buying them before last week, before the collapse, so I stepped in and bought some. It’s certainly going to cause more pressure on commodities because Japanese agriculture is now suspect and maybe even going to be scrapped. On metals, the Japanese have not been doing construction for many years, but now you’re going to have a big new buyer, a surprise buyer, of copper, cement and steel because they’re going to rebuild. Likewise with for oil, natural gas and coal because there’s now more emphasis on alternate, non-uranium sources of energy, (and) it’s going to cause more pressure on that kind of energy going forward. It’s more commodity demand for the world.

Q. What will the commodity price boom mean to the U.S. agricultural land prices?

A. It’s already making them go higher and they’re going go much, much higher.  We still have a huge presence in agriculture. Land prices are going up. Farm prices in Iowa are going up; condominium prices in Iowa are going up as a result. That’s going to continue. Agriculture is going to be extremely profitable for the next 10, 20, 30 years. We may very well have gigantic food crises in the next few years, because we have shortages of everything including farmers. The average age of the farmers in state “X” is 58. In 10 years, they’re going to be 68 if they’re still there. This is happening all over the world. In Japan, there are vast fields that cannot be farmed. The Japanese government has just started to go, “What are we going to do?” They started to even bring in Chinese farmers as an experiment to farm the fields. So farmland worldwide is going to go up in price, certainly in America. And agriculture is going to be one of the most exciting professions in the next 10, 20 years. It’s going to be the farmers driving the Lamborghinis going forward, not the stock brokers. In fact, the stock brokers are going to be driving taxis. If I’m right, the smart ones will learn how to drive tractors so they can work for their farmers. They’re going to be driving their Lamborghinis to their lake houses, and then they’ll be going through the roof in price.

Q. So if you’re an American investor and you’re looking at that, how do you invest into that kind of future?

A. You could buy businesses that benefit from farmlands, farming, seeds, fertilizers, tractors, the stores and shops that are in the agriculture belt. There are plenty of ways to invest. I presume there are some banks in that part of the world which will be prosperous and thriving. But the best way of course is to buy rice futures or the futures themselves. There’re plenty of ways to do it.

Q. What do you make of India?

A. I am not optimistic. I’m short India, as a matter of fact. I can go on and on about the shortcomings of India and how people don’t understand India, but the one fact is that India now has now a 90% debt to GDP ratio, which, for some reason, the bulls either don’t know or ignore. As you probably know, the studies show that when a country gets to 90% to GDP it’s very difficult to grow very rapidly because everything you’re doing is paying off the debts of the past. So no matter how productive and dynamic you are, you’ve still got a big burden. So for that and all the other reasons, I’m less optimistic about India then most people. It’s a phenomenal country to visit, but boy, it’s tough to do business there. Even for Indians, it’s tough to do business there.

Q. What about some of these other Asian markets?

A. I’m not buying shares anywhere right now because I would rather own commodities. I’m still skeptical of the world economy. If Myanmar opens a stock exchange – and they’re trying, I would buy shares there in a minute.

Q. Why?

A. Well, there are 80 million people (that are) disciplined (and) educated, and vast natural resources. There is India on the left and China on the right, It’s starting to open up – not according to the western press, but you know, it’s time (for them) to open up. It’s got enormous potential.  They don’t have to compete with Westerners because the Westerners are all boycotting. They don’t have to compete with Exxon because Exxon is not there, so it’s wonderful for anybody who’s there in business. They’re going to make a lot of money, because a lot of Westerners are not going there yet.

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