Review of Jim Rogers' Investment Autobiography, Street Smarts

credit: sg.asiatatler.com

Famed investor Jim Rogers has published a book that is part autobiography, part geopolitics, and part investment wisdom. Street Smarts: Adventures on the Road and in the Markets (Crown Publishing, 2013) gives his views on investing, which countries are growing more powerful and which are declining, what America must do to reform its society, and the value of raising children. Despite its wide scope, the book does not meander. Rogers engaged me throughout with his ideas about television (like me, he avoids it), politicians, ethics, and what it takes to succeed.

As an autobiography, the book reveals that Rogers single mindedly tried to understand how markets worked and struggled without pause to do so. He enjoyed learning how the world works, so he was motivated to understand markets as well as wanting not to lose money. He worked on holidays and through weekends. He had few distractions as none of his earlier marriages lasted long or produced children. The picture on the left shows Rogers with his third wife, Paige. He now has two Mandarin-speaking daughters as well. Rogers insists that he was successful because of his ability to think independently and willingness to travel and look at  information sources himself.

The two main themes of the book are the transition to Asia as the economic powerhouse as American leadership declines and "a cyclical shift away from financial firms as a source of prosperity" (P. 5) in favor of producers of real goods, especially foodstuffs. (As an aside, brick and mortar education may be replaced by distance learning, and Rogers predicts many of today's elite universities will go bankrupt.)

Rogers states that the United States needs to do five things to be saved: change the tax system, change the education system, institute health-care and litigation reform, and bring the troops home" (P. 241), but he is doubtful that these reforms will occur because of the power of special interests. He suggests that the legislative branch  no longer meet in Washington, D.C., and instead the representatives and senators should in their local areas and meet virtually, avoiding the power of the special interest groups.

Since Rogers conducts his business dealings ethically and believes his good name is invaluable, I found it interesting that he glosses over human rights violations in many of the leading Asian countries, comparing these problems to those in early America:  lack of real democracy in the early years of the American Republic and the existence of a late 19th-century plutocracy. In other words, according to Rogers the United States committed many of the same sins now found in Asia. I find this comparison unfair as our government has committed crimes of omission (because the Constitution limits its powers) rather than commission, such as throwing people in prison because of their beliefs. Rogers' unwillingness to come to terms with Asian oppression is the weakness of this book. He feels that China, Myanmar, and North Korea will eventually change for the better. So invest today! Despite this flaw, the book is well worth reading.

I have previously recommended Rogers' Investment Biker book to my economics students and will add this book to my list of recommended books as well.

See my previous blogs about North Korea here and food prices here and here.

The Biggest Urbanization Program Ever and Food Prices

Source: NYT

According to the New York Times (link here), China is in the midst of a program to move 250 million people from the countryside to cities, joining the 450 million that already live in Chinese cities. China's goal is to be 70 percent urban, and therefore modernized by 2025. A quarter of a billion people will be watching their ancestral villages return to the earth and are pushed into modernity "replacing small rural homes with high-rises, paving over vast swaths of farmland and drastically altering the lives of rural dwellers"

(China’s Great Uprooting: Moving 250 Million Into Cities, June 15, 2013 New York Times)

The building frenzy is on display in places like Liaocheng, which grew up as an entrepôt for local wheat farmers in the North China Plain. It is now ringed by scores of 20-story towers housing now-landless farmers who have been thrust into city life. Many are giddy at their new lives — they received the apartments free, plus tens of thousands of dollars for their land — but others are uncertain about what they will do when the money runs out.

Aggressive state spending is planned on new roads, hospitals, schools, community centers — which could cost upward of $600 billion a year, according to economists’ estimates. In addition, vast sums will be needed to pay for the education, health care and pensions of the ex-farmers.

While the economic fortunes of many have improved in the mass move to cities, unemployment and other social woes have also followed the enormous dislocation. Some young people feel lucky to have jobs that pay survival wages of about $150 a month; others wile away their days in pool halls and video-game arcades (ibid).

Economically, city dwellers create demand for goods and services and country-dwellers do not.

The primary motivation for the urbanization push is to change China’s economic structure, with growth based on domestic demand for products instead of relying so much on export. In theory, new urbanites mean vast new opportunities for construction companies, public transportation, utilities and appliance makers, and a break from the cycle of farmers consuming only what they produce. “If half of China’s population starts consuming, growth is inevitable,” said Li Xiangyang, vice director of the Institute of World Economics and Politics, part of a government research institute. “Right now they are living in rural areas where they do not consume” (ibid.)

In addition to moving people from rural to urban areas, the Chinese government is trying to get rid of unsightly hamlets and make way for large industrial projects such as dams. My uncle, fresh from a visit to China, writes: 

Mike,

Here are a couple of pictures of Chongqing showing the poorer area that will soon be demolished and replaced by modern high rise apartments. The other [third picture] shows a modern 'village' on the Yangtze River that replaced a village that now is under the river since the dam was completed. 1.5 million people were relocated when they built the dam.

Will this great experiment work? Will China succeed in creating a massive modern economy, dwarfing the demand for goods and services enjoyed in the United States, or will it create a large underclass of unskilled, slum dwellers? I don't know. I will guess, however, that this urbanization program will create greater demand for food. City dwellers tend to eat more animal and processed products, creating more demand for grains, sugars, and other basic foodstuffs. Farmers, rapidly decreasing in number, eat closer to the base of the food chain. I also believe that China's gamble on urbanization will decrease the supply of food. The government is paving over farmland or giving it to local governments and agribusiness. Meanwhile, brilliant investor Jim Rogers writes:

Until prices  reach a point where growing food is profitable, the world's farmers, who are currently aging and dying, are not going to be replaced. Prices must rise, and they will. In recent years, the world has been consuming more food than it has produced. Those inventories that were so high in the 1980s are now historically low, somewhere near 14 percent of consumption. The world is facing drastic shortages. Food prices are on the way up (Rogers, Jim, Street Smarts: Adventures on the Road and in the Markets, Crown Publishing, 2013, P.28).

Look for food prices to increase, whether inflation appears or not. (See my previous blog on this issue here.)

Times Puff Piece on New Chinese Dictator

The NYT (Never Yell Truth; Nikita, Yuriy, Trotsky; New Yankee Tragedy--you pick ), honoring their philosophy, "All the Leftist Propaganda News Fit to Print," found time in between working for the Obama reelection campaign to publish an obsequious piece analyzing the background of the new Chinese dictator. In the Times November 3, 2012 article, Close Army Ties of China’s New Leader Could Test the U.S (link here), reporter Jane Perlez catches the readers interest with new Communist Party leader's Xi Jinping's Mexico City criticism of American policy:

“There are a few foreigners, with full bellies, who have nothing better to do than try to point fingers at our country,” Mr. Xi said, according to a tape broadcast on Hong Kong television.  “China does not export revolution, hunger, poverty nor does China cause you any headaches. Just what else do you want?”

Oh, I can think of a few things: Quit supporting the murderous and terrorist regimes in North Korea and Iran. Stop building up your military and threatening U.S. allies. Let your currency float instead of violating trade regulations. But Perlez's article never challenges Xi's ludicrous statements. Instead, the article suggests that America is in decline and China is ascendant.

The Chinese military’s new buoyancy comes as America’s allies across Asia — Japan, South Korea, Australia and other friends, particularly Singapore and India — worry whether the United States has the money, and the will, to enhance its military presence in Asia, as President Obama has promised.  

The above may be true, but the Times' does not interview anyone critical of the Chinese regime. The last time I checked the New York Times was not affiliated with China's People's Daily. I'm having difficulty figuring out the difference between them.

China does not show the American public it's aggressive policy, the speech made in Mexico City and the leadership's real feelings. Instead, we are told to play with panda bears and enjoy inexpensive Chinese goods. The People's Daily editorializes, China’s Communist Paper Calls for Closer U.S. Ties Under Xi (link here). "China and the U.S. should deepen cooperation and become more interdependent, the Communist Party’s flagship newspaper said in a commentary today, signaling that new leader Xi Jinping may seek closer ties."

On whose terms?

Is China a Political and Economic Model for the World?

China is ruled by its Communist Party elite, but China is not a purely communist country any more. Nor does China allow a free flow of information favored by free market societies. So what type of government rules China? Could China be described as a fascist form of government? The Constitutional Rights Foundation's Bill of Rights in Action (25:4) states that common characteristics of fascism  include the following underlined elements:

Absolute power of the state There is no power that challenges the supremacy of the Chinese central communist party.

Rule by a dictator President Hu Jintao holds the position of General Secretary of the Communist Party of China. The regime, however, is not run by a "indispensable" charismatic leader, a Mao or a Stalin. Hu Jintao does not encourage a cult of personality and develops the image of being an efficient, if somewhat faceless bureaucrat. The Chinese Communist party rules as a police state and does not allow the people to vote for candidates outside their control.

Corporatism (state control of labor and capital) The state encourages a docile workforce but allows plenty of entrepreneurial talent to express itself, especially in manufacturing. The country creates incredible amounts of wealth, perhaps more than has ever been created in such a short time. On the other hand, the Party's command economy orders the construction of dams, ghost cities and assorted monstrous boondoggles to the detriment of the people. These project the economic prowess of its rule and raise reported GDP.

Extreme nationalism Jingoism is encouraged whenever Taiwan makes noises for independence or Japan fails to atone for various WWII atrocities.

Superiority of the nation's people Do Chinese think they are better than everyone else? Yes. But so do the French and Americans. The Chinese are not Nazis.

Militarism and imperialism China's military buildup is quite alarming. It seems that its purpose is to intimidate Taiwan and impress the United States and not to take over India and Russia.

China is an authoritarian, one-party dictatorship. The people have no rights outside of the demands of the Communist party. However, I do not think its government fits the description of fascism.

Is China an economic model worth emulating? China's long-term growth rate of 9.5 percent is unparalleled as underemployed farmers rush to the cities. China has become the workshop of the world. However, the Chinese government is doing the reporting, and the Shanghai stock market has recently dropped 30 percent. (See Richard C Young's Intelligence Report, February, 2012 here.) Chinese theft of American company trade secrets and manipulation of its currency have contributed to the country's success, though few would consider those ethical ways of competing in the global marketplace.

Ted Fishman's book, China Inc. reports on how female workers are exploited in the ubiquitous Chinese textile and electronics factories. "Young women, manufacturers seem to always claim, are better suited to factory jobs that require patience and small motor skills, traits men are said to lack. This enduring piece of nonsense reshapes the workforce wherever it is allowed to take hold" (P.90).

No, this is not 19th-century Manchester. It is 21st-century Shenzhen. The real reason that young women are preferred on the work floor is because they cause less trouble and are more docile than their male or older counterparts.

A communist government looking the other way as masses of workers slave long hard hours for $2 per day is not the only irony of China. While China's 300 million indigent and transient workforce is still looking for factory labor, the wage gap has shrunk. Investment professional Chris Mayer writes:

Wages in China and other overseas markets have gone up a bunch while U.S. wages have stagnated. Cheap fuel has long since expired as a reality. Oil is the big factor and crude oil averaged north of $100 a barrel last year for the first time ever. But natural gas is another lure to come back to the U.S. In China, for example, natural gas prices are twice what they are here.

There is more: The U.S. dollar has lost a quarter of its purchasing power since 2002 against a basket of 20 major currencies. That makes U.S. assets and talent cheaper compared with similar assets and talent overseas.

The raw costs are only part of the equation. There is the soft stuff to consider as well, things like intellectual property risks and the fragility of supply chains. The Japanese tsunami and floods in Thailand caused major disruptions for manufacturers. And the U.S. itself is still the world's largest market. Therefore, the thinking goes, it could be better to make things closer to the customers that buy them.

Researchers at Gartner predict that 20% of the goods made in Asia for the U.S. will shift back to the U.S. by 2014. Surveys of manufacturers show many are considering moving operations back to the U.S. (Capital and Crisis Email, Comeback, USA -- Notes from the Road, Feb10, 2012)

So China, an increasingly powerful economic juggernaut, is not as attractive a lure for overseas manufacturing as it once was. China is neither a good political nor economic model for the United States. Instead, we should take lessons from successful free countries--the Swiss, Germans and Japanese--great exporters with labor and energy costs equal to or greater than our own.

Postscript, July, 2012: Will China's communist rulers be able to maintain their hold on power as their economy descends into a sharp slowdown?