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.)

Work a Day for a ...Stick of Butter?

Butter is at the ridiculously high price of $4 per pound on Norwegian shelves when you can find it. Usually you can't. Filling the gap, websites peddle the stuff, a staple for Norwegian Christmas treats for $100 per pound.  What a great example of the foolishness of price ceilings, the extremism of the "buy local" movement, and the need for free trade.

The problem would be solved if imports were allowed in the country. Instead smugglers rule. Norway International Network (see above link) writes:

The butter shortage is expected to continue through the end of the year, and may leave Norwegians re-thinking their protectionist policies aimed at preserving local agriculture and keeping cheaper imports out of Norway. In this case, the policies clearly have backfired, at the height of the Christmas baking season.

 If Norway won't allow imports, perhaps they will allow the market to self-correct. Nope. My guess is "price gouging," also known as letting the price rise until it is at equilibrium with demand, is illegal. The stores are forced to sell butter at an artificially low price (a price ceiling), which results in a shortage, the difference between qD and qS in the price ceiling graphic figure above. Many Norwegians will have to do without their Christmas treats this year. Why would Norwegian farmers put more butter on store shelves (even if they could) if they won't be paid $10 or $20 per pound for their trouble?

Left to its own devices, the market does a much better job of allocating assets, and in the long run, keeping prices as low as possible.

Crime and the End of Cheap Food

Please see the PDF document "foodprices," Crime and the Price of Wheat in 14th-Century Norfolk, England here. The linked chart is from Sherman et al., World Civilizations, Sources, Images and Interpretations, V.I, 4th ed., McGraw-Hill, New York, 2006. It shows a strong correlation between the price of wheat and number of crimes committed in Norfolk.

If we make the reasonable proposition that human nature has not changed much in 700 years, we have much to worry about.

Michael Pollan has inferred that low food prices have kept the American middle class from revolting against the politicians, since middle class incomes have stagnated over the last decade. (See The Food Movement, Rising here.) In fact, he claims that cheap food is at least partly responsible for low wages.

Well, the cheap food party is over. The nanny state looks to raise prices by taxing what it considers "unhealthy." (See my satirical post on the subject here.) Additionally, global food prices are being pressured upward by voracious demand from Asia. Produce and cereal prices have risen astronomically in the last few years, and I see few reasons for that long-term trend to change. As we move past peak oil and energy and fertilizer prices increase, it costs more to grow food. Lastly, national US debt has swollen 40 percent higher over the last three years, (see the link here) and that will lead eventually to higher inflation and higher food prices. Unfortunately, desperate times lead to desperate people in both the 14th and 21st centuries.

I'm not the only one that senses impending problems.

A chain of three stores that sells survival food and gear reports a jump in sales to people who are getting prepared for the “possible collapse” of society.

See the article here.