Nick Giambruno: Welcome, Jim.
As you know, Doug Casey and I travel the world surveying crisis
markets, and we always like to get your take on things. Today I
want to talk to you about Russia, which is a very hated market
right now.
What are your thoughts on Russia in general and on
Russian stocks in particular?
Jim Rogers: Well, I'm optimistic about the future of
Russia. I was optimistic before this war started in Ukraine,
which was instigated by the US, of course.
But in any case, I
bought more Russia during the Crimea incident, and I'm looking
to buy still more.
Unfortunately, what's happening is certainly not good for the
United States. It's driving Russia and Asia together, which
means we're going to suffer in the long run - the US and Europe.
Another of the big four Chinese banks opened a branch in Moscow
recently. The Iranians are getting closer to the Russians.
The
Russians recently finished a railroad into North Korea down to
the Port Rason, which is the northernmost ice-free port in Asia.
The Russians have put a lot of money into the Trans-Siberian
railroad to update it and upgrade it, all of which goes right by
China.
Usually, people who do a lot of business together wind up doing
other things together, such as fighting wars, but this isn't any
kind of immediate development.
I don't think the Russians, the
Chinese, and the Iranians are about to invade America.
Nick: So because of these economic ties to Asia, the
Russians are not as dependent on the West.
Is that why you're
optimistic about Russia?
Jim: I first went to the Soviet Union in 1966, and I came away
very pessimistic. And I was pessimistic for the next 47 years,
because I didn't see how it could possibly work.
But then I started noticing, a year or two ago, that now
everybody hates Russia - the market is not at all interesting to
anybody anymore.
You may remember in the 1990s, and even the first decade of this
century, everybody was enthusiastic about Russia. Lots of people
had periodic bouts of huge enthusiasm. I was short the ruble in
1998, but other than that, I had never invested in Russia,
certainly not on the long side.
But a year or two ago I started
noticing that things are changing in Russia… something is going
on in the Kremlin. They understand they can't just shoot people,
confiscate people's assets. They have to play by the rules if
they want to develop their economy.
Now Russia has a
convertible currency - and most countries don't
have convertible currencies, but the Russians do. They have
fairly large foreign currency reserves and are building up more
assets.
Having driven across Russia a couple of times, I know
they have vast natural resources. And now that the
Trans-Siberian Railway has been rebuilt, it's a huge asset as
well.
So I see all these things.
I knew the market was depressed, knew
nobody liked it, so I started looking for and finding a few
investments in Russia.
Nick: Yeah, that definitely seems to make sense when you look at
the sentiment and long-term fundamentals.
So where do you see
the conflict with Ukraine and the tensions with the West going?
Jim: Well, the tensions are going to continue to grow, at least
as long as you have the
same bureaucrats in Washington.
You
know, they all have a professional stake in making sure that
things don't calm down in the former Soviet Union - so I don't see
things getting better any time soon.
I do notice that some companies and even countries have started
pulling back from the sanctions.
Many companies and people are
starting to say,
"Wait a minute, what is all this
about?"
People are starting to reexamine the propaganda that comes out
of Washington.
Even the Germans are starting to reassess the
situation. I suspect that things will cool off eventually,
because the US doesn't have much support and they've got plenty
of other wars they want to fight or are keen to get started.
So Russia will become more and more dominant in Ukraine. The
east is more or less Russian. Crimea was always Russian until
Khrushchev got drunk one night and gave it away.
So I suspect
you will see more and more disintegration of Ukraine, which by
the way is good for Ukraine and good for the world.
We don't complain when the Scots have an election as to whether
they want to leave the UK or not. People in Spain want to leave.
We say we're in favor of self-determination. We let
Czechoslovakia break up, Yugoslavia break up, Ethiopia break up.
These things are usually good. Many borders that exist are
historic anomalies, and they should break up.
Just because
something happened after the First World War or Second World War
and some bureaucrats drew a border doesn't mean it's logical or
should survive.
So I suspect you will see more of eastern Ukraine becoming more
and more Russian.
I don't see America going to war, I certainly
don't see Europe going to war over Ukraine, and so America will
just sort of slowly slide away and have to admit another
miscalculation.
Nick: I agree. Would you also say that Europe's dependence on
Russia for energy limits how far the sanctions can go?
There's
been speculation that the Europeans are going to cut Russia out
of the
SWIFT system, like they did with Iran.
Jim: Well, anything can happen.
I noticed SWIFT's reaction when
America tried to force them to do that: they were not very happy
at all.
I'm an American citizen like you, and unfortunately the bigger
picture is forcing the Russians, the Chinese, and others to
accelerate in finding an alternative. That is not good for the
US.
The Americans have a monopoly, because everyone who uses dollars
has to get them cleared through New York. People were already
starting to worry in the past few years about the American
dominance of the system and its ability to just close everything
down.
So now the Russians and Chinese and others are accelerating
their efforts to find an alternative to SWIFT and to the
American dollar and the dominance of the US financial system.
As I said earlier, none of this is good for the US. We think
we're hurting the Russians.
We are actually hurting ourselves
very badly in the long term.
Nick: I think one area where you can really see this is that the
US essentially kicked Russia out of Visa and MasterCard. And
what did Russia do?
They turned to
China UnionPay, which is
China's payment processor.
Jim: We could go on and on.
There are things that have happened,
and everything is underway now because Putin has told everybody,
"Okay, we've got to reexamine our whole way of life that has
evolved since the Berlin Wall fell," and that's one of the
things.
By the way, the Chinese love all of this. It's certainly
good for China. It's not good for the US in the end, but it's
great for China and some Asian countries, such as Iran.
Nothing we have done has been good for America since this whole
thing started - nothing. Everything we've done has been good for
the Chinese.
Nick: So why are they doing it?
Jim: You know as well as I do: these are bureaucrats who
shouldn't be there in the first place. Power corrupts, and it
has.
You look at the beginning of the First World War, the Emperor,
who was 85 years old at the time, made nine demands on the
Serbians. Serbia met eight of his demands.
For whatever reason
they couldn't meet the ninth.
And so they said,
"Okay, that's
it… war."
And then everybody was at war.
The bureaucrats everywhere piled in with great enthusiasm - great
headlines about how the war will be over by Christmas. By the
way, whenever wars start, the headlines always say the war will
be over by Christmas, at least in Christian nations.
But six
months after that war started, everybody looked around and said,
"What the hell are we doing? This is madness."
Millions of
people are being killed. Billions of dollars are being lost.
This is not good for anybody.
And why did it start? Nobody could
even tell you why it started, but unfortunately it went on for
four years with massive amounts of destruction, all because a
few bureaucrats and an old man couldn't get their acts together.
None of that was necessary. Nearly all wars start like that.
If you examine the beginning of any war, years later you ask,
"How did it happen? Why did it happen?"
And usually there's not
much explanation.
The winners write history, so the winners
always have a good explanation, but more objective people are
usually confused.
Nick: Excellent points that you make, Jim. I want to shift gears
a little bit. I know you're a fan of agriculture, and parts of
Russia and Ukraine are among the most fertile regions in the
world. Investing there is a nice way to get into agriculture and
also Russia at the same time.
What do you think about companies
and stocks that own and operate farmland in that region?
Jim: Well, historically you're right.
Ukraine was one of the
major breadbaskets of the world, and some of those vast Russian
lands were great breadbaskets at times in history. Communism can
and does ruin everything it touches. It ruined Soviet
agriculture, but many of those places have great potential and
will revive.
I haven't actually gone and examined the soil myself to see that
it's still fertile, but I assume it is because you see the
production numbers. That part of the world should be and will be
great agricultural producers again. It's just a question of when
and who.
By the way, I have recently become a director of a large Russian
phosphorous/fertilizer company, partly for the reasons you're
discussing.
Nick: We were talking about Russia and Iran. I've had the chance
to travel to Iran. It has a remarkably vibrant stock market, all
things considered. It's not heavily dependent on natural
resources. They have consumer goods companies, tech companies,
and so forth.
Do you see the potential for Iran to open up anytime soon, maybe
a Nixon-goes-to-China moment?
Jim: I bought Iranian shares in 1993, and over the next few
years it went up something like 47 times, so it was an
astonishing success.
I got a lot of my money out, but some of it
is still trapped there. I don't know if I could ever find it,
but I took so much out it didn't really matter.
Yes, I know that there's an interesting market there. I know
there's a vibrant society there. I know huge numbers of Iranians
who are under 30, and they want to live a different life. It is
changing slowly, but it's in the process.
Part of it, of course, is because the West has characterized
them as demons and evil, which makes it harder. I was never very
keen on things like that.
Throughout history and in my own
experience, engagement is usually a better way to change things
than ignoring people and forcing them to close in and get bitter
about the outside world.
So I don't particularly approve of our approach or anybody's
approach to Iran. I certainly don't approve of old man Khamenei's approach to Iran either. There were mistakes made in
the early days on both sides. But that's all changing now. I see
great opportunities in Iran. If they don't open to the West,
they're going to open to Asia and to Russia.
There are fabulous opportunities in Iran, with over 70 million
people, vast assets, lots of entrepreneur-type people, smart
people, and educated people.
Iran is Persia. Persia was one of
the great nations of world history for many centuries.
So it's not as though they were a bunch of backward people
sitting over there who can't read or find other people on the
map. Persia has enormous potential, and they will develop it
again.
Nick: I completely agree, and we're looking at Iran closely,
too. If the West doesn't open up to Iran, it's going to lose out
to the Chinese and the Russians, who are going to gobble up that
opportunity and really eat the Americans' lunch.
Of course with the sanctions, it's pretty much illegal for
Americans to invest in Iran right now.
Jim: That wasn't always the case. Years ago, if the investment
was less than a certain amount of money, and some other things,
there were no problems.
I don't know the details of the current
law.
Nick: It's difficult to keep up with, because the story is
constantly changing.
Jim: Well, that's the brilliance of bureaucrats; they always
have something to do. It gives them ongoing job security.
Nick: Exactly. Another place we have on our list is Kurdistan.
Jim: The Kurds have been a pretty powerful group of people for a
long time. I hope they can pull it together. An independent
Kurdistan would be good for Turkey and good for everybody else.
Unfortunately, again, you have all these bureaucrats who don't
like change.
I've certainly got it on my radar, and maybe I'll bump into you
in Iran, or Russia, or Kurdistan, or who knows where.
Nick: Sounds good Jim, we'll be in touch.
