Jim Rogers, financial commentator, author and contrarian investor, loves commodities, but after the recent commodity carnage, does he still?
Gold prices fell 4.2 per cent last week, silver prices plummeted 27 per cent, and oil tanked 14.7 per cent. As silver was smacked with an 85 per cent increase in margin requirements in two weeks, Osama Bin Laden was killed removing some risk premium from the markets, over-crowded commodity trades shook out and the U.S. dollar index rallied, commodities took a nose dive.
The SPDR Gold Shares shed almost 25 tons in 5 days while iShares Silver Trust dumped 767 tons.
TheStreet sat down in an interview with Rogers to see if the recent correction changed his view on the bull market in commodities.
I wanted to start off with last week's commodity carnage, what does that tell you about the commodity trade?
Rogers: Well, not much if you ask me. Markets correct all the time. Silver went down a great deal but if you raise margin requirements 150-200 per cent you would expect there's something to collapse. It's good for the market as far as I'm concerned. Silver especially needed a set back and a consolidation. I'm delighted to see everything.
So this wasn't one current bubble that then burst at that time?
Rogers: I hardly see how silver could be a bubble when, even at its top, it's still below it's all-time high. That's not much of a bubble. A bubble is when things are screaming up every day and they go to new highs, two to three times their old highs. We'll have a bubble, we'll have a bubble in commodities, we're not there yet.
What price do you think silver will hit that would make it a bubble?
Rogers: Well, it depends on the timing. If it goes to $150 this year, all other things being equal, then I'd say you better sell your silver. If it goes to $150 in 10 years then I would say that's a normal progression up and that's the way things work. But if the U.S. dollar suddenly turns into confetti then you better hold your silver at $200. So it depends on the circumstances and the timing more than anything else.
Now talking to a lot of technical traders when they looked at the silver chart, say over the last year, they saw that parabolic rise which made them really think it was a bubble. Also, to your point, we have talked about this before, when you hear people talking on the Street about say pork bellies that means we are in a bubble. I heard stories of people talking on the street on their cell phones talking about silver last week hoping it would go higher so they could sell.
Rogers: Oh, I was hoping it would go down so I could buy ...I was on some show talking about how this parabolic bubble better stop soon. But Ms. Steel, how many people do you know who actually own silver? I suspect you don't know man y people at all. I spoke recently at a conference [with]400 big time money managers around the world.
The moderator said how many of you have ever owned gold? Seventy six percent of them had never owned gold much less silver or soybeans or cotton, so I suspect you don't know anybody who owns silver. Someday you'll know a lot of people who own silver, everybody you know. That will be a bubble, that's the time to sell.
So was silver's parabolic rally we saw then more of a trader bubble?
Rogers: I'm not sure I would call it parabolic, I would certainly call it a spike, it didn't quite reach parabolic status in my view, but it certainly was a gigantic crazy spike. When something goes up 25-30 per cent in a month, that's something to worry about a great deal. I don't know what caused it maybe it was short covering, maybe it was rumors. I have no idea. I know that 25 per cent in a month is dangerous.
So silver fell 27 per cent last week, was it enough for you to want to buy more?
Rogers: Well, I'm too lazy, I'm doing other things right now, but I hope at some time in the next month or two if it goes down or stays down then I will get the energy to go around and buy some more silver, yes. Or maybe it will go to $25, I don't know